Posted on 01/03/2023 4:54:16 AM PST by MtnClimber
What do you think is going to happen in 2023 as real-estate prices fall because mortgage rates have doubled?
First of all, nobody knows what will happen next with the economy. On the one hand our Democratic friends seem to think that their supercalifragilisticexpialidocious omnibus spending bill and glorious Inflation Reduction Act are already steering us to the green and pleasant land of woke Jerusalem.
But then you have Jeffrey A. Tucker saying that the end of negative interest rates ain't gonna be a walk in the park. Sez he:
Most people under the age of 40 have no financial experience in a world of positive interest rates for most dates of maturity… When Ben Bernanke pushed his new policy [back in 2008], he was flipping all economic and financial logic on its head.
See, ever since the Crash of 2008, interest rates have been less than the rate of inflation, to help revive the economy, courtesy of Little Ben Bernanke. Until this year.
Back in the 2000s, real-estate mortgage rates stayed pretty constant between 5.5 and 6.5 percent. But short-term Treasuries went from 0.95 percent in 2004 to 4.9 percent three years later in 2007. Then we had the real-estate meltdown of 2008 and the Great Recession.
That was nothing compared to 2022.
In 2022, 30-year mortgage rates have gone from 3 percent to 6.5 percent in one year.
(Excerpt) Read more at americanthinker.com ...
No....
Just a Financial Polar Vortex
An Economic Earthquake
A Market Tsunami
Possibly even a Stock Market Supernova
Since we’re all guessing here I will too.
Don’t fight the Fed. Their biggest weapon against inflation is demand destruction.
Since we do NOT have any chance of Supply Side help for the next 2 years that’s all there is, my friend.
But Democrats have done their worst to create Stagflation over the last 2 years. Read
We’ll get a Recession, the Fed will be pushed by Biden’s puppeteers to lower rates too soon and inflation will not be fixed.
Then there’s the problem of the cost of energy & the “Green” idiocy.
Buckle up.
Created by democrats
But not this time. As you pointed out the treasury rates have risen, which makes treasury prices fall. So 30% of my portfolio has declined along with the stock market. The other 30% is spread out across various bond funds (which also have dropped some) and two money market funds waiting to buy at the bottom of the Biden Bust.
“Feds need to lower interest rates now.”
They cannot. They are between a rock and a hard place.
Inflati9n is like a virus that needs a fever to suppress it before a person can be healthy.
We should have had a sevwre recession in the mid 1990’s and would have if Clinton had not rigged the market by changing the computation of inflation index, plaing games with gold futures and the currency stabilization fund, and centralizing mortgage lending from banks to the Federal Government.
The games have been maxed out. The game is about to end.
While borrowing money has gotten more expensive, last year about this time the experts were saying by this past fall huge business reversals, stock market in the 15,000 range and wide spread unemployment. Hasn’t happened in the grand scheme of things. Yes, you keep enough pressure on the economy for long enough and it will reverse. But despite a lot of factors, the so called terrible economy has been very resilient.
The Financial Times reported that 2022 was the worst year for U.S. stocks and bonds since 1871. Bonds down 17%, stocks down 18%. Those are nominal numbers, and are not adjusted for inflation.
The Morgan Stanley Capital International (MSCI) World Index reported that $18 Trillion was lost globally by stocks and bonds in 2022. Again, nominal numbers, not adjusted for inflation.
Assuming that collective reporting by the governments of the world is even remotely accurate, the financial net worth of the world was $250 Trillion, global net wealth was $380 Trillion and the Gross World Product was $80 Trillion at the end of 2021.
So, in a single year, 27.5% of Gross World Product, 8.8% of the financial net worth of the world, and 5.8% of the world’s total wealth got annihilated.
Officially, the national debt of the United States is $31.5 Trillion with an additional $173.4 Trillion of unfunded liabilities, mostly for Medicare, Social Security, Medicaid, etc. State and local governments are carrying an additional $3.5 Trillion in debt. To put this in perspective, the total government liabilities of the United States are equal to 84% of global financial net worth.
The rest of the governments of the world are carrying more than $63 Trillion of “official” debt, and a much larger, but unknown, total of unfunded financial liabilities.
Globally, the governments of the world “officially” consume 17% of GDP, and run deficits of 10% of GDP. The United States “officially” spends 36.9% of its GDP on government and runs deficits of 6% of GDP. To date this has been made possible by historically low interest rates. However inflation is driving increases in those interest rates, which will make the financing of even “official” government debt unaffordable for many nations, including the United States.
Nationally and globally, government debt and unfunded liabilities far exceed global wealth, and are growing faster than global wealth. It addition, much of what is on the balance sheets of global wealth are relatively illiquid assets. In the hands of the their current owners, they are probably productive, but if forced to liquidate, they would likely realize a small portion of their book value.
Again, all of the above is in nominal values, inflation has not been factored in.
I do not know if there is an “Economic Bomb Cyclone” coming, but things are going to get a lot worse. The single best thing the United States could do to turn this around would be to cut in half the total size of government at all levels, Federal, State, and Local, so that government ended up at under 20% of GDP.
However, the political will to do that is lacking as people want their “free” stuff.
Ultimately, TANSTAAFL, and the rapidly approaching reckoning will make the Great Depression, Weimar Republic, Venezuela, Haiti, and Zimbabwe look like Teddy Bear Picnics.
That’s racist! /s
I’m leaning towards an economic sharknado.
Folks should go to the liquor store NOW.
What is TANSTAAFL?
There Ain’t No Such Thing As A Free Lunch (TANSTAAFL)
Robert Heinlein - The Moon Is a Harsh Mistress
The trouble is finding alternatives to stocks. Bonds did even worse than stocks. I expect real estate prices to crater this year.
We liquidated about half of our net worth in 2021 and parked it in mutual funds earning less than 1% interest. After inflation, those accounts are worth about 8% less than they were a year ago.
Look, in the middle of the economic bomb cyclone...
it’s a Black Swan !!!
We bought some Series I Bonds last year when the were paying 9.6%, but you are limited to $10,000 per person a year and pay a penalty if you cash them in before five years. I Bonds are currently paying 6.89%.
https://www.forbes.com/advisor/investing/what-are-i-bonds/
LOL.
That isn’t mixing metaphors, but is certainly adding them together!
(I posted that because lately, there are a lot of “news” articles talking about “atmospheric rivers” to explain variabilities in weather, and this seems to be a new talking point by the climate hysterics)
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