The Federal Reserve Broke The Budget. Buckle Up For What Comes Next.

Investors Business Daily ^ | 11/26/2023 | Jed Graham

[SeekAndFind]

The 10-year Treasury yield set off roaring alarms about the U.S. budget when it surged to 5% last month. Now those warnings look like a fire drill. Federal Reserve rate hikes seem to be over for now, giving the bond market a reprieve and allowing a powerful S&P 500 rally to resume.

Enjoy it while it lasts. The next debt scare may be the real thing, and it could rock the U.S. economy and stock market.

Here's why: The Fed's historic turnabout, from enabling massive budget deficits to directing the sharpest rate hikes in 40 years, has seemingly broken the budget. Treasury market stress is almost certain to return.

The era of Fed quantitative easing and near-zero interest rates promoted carefree fiscal policies that led the U.S. to rack up $20 trillion in federal debt since 2008 financial crisis.

Federal Reserve Fuels Red Ink

Exhibit A in the case of the broken federal budget is the deficit's surge in fiscal 2023, which ended Sept. 30. Unemployment was near a record low and GDP growth was strong. Under those conditions, the budget deficit usually shrinks. But it essentially doubled to $2 trillion, if you ignore accounting for Biden's student loan forgiveness that was struck down by the Supreme Court.

The Federal Reserve's fingerprints are all over the red ink. After the Fed sent more than $100 billion in interest on its bond portfolio to the Treasury in fiscal 2022, it had to halt those payments last year as bond prices fell. Having let inflation get out of the bag, an 8.7% cost-of-living adjustment stoked a $134 billion increase in Social Security checks.

Another roughly $100 billion went to FDIC bailouts, as banks like Silicon Valley Bank that loaded up on Treasuries when rates were ultralow became insolvent when Treasury yields surged.

[Vermont Lt]

Does the fed still have all those mortgage backed securities? I wonder how those are “Marked to Market.”?

[Vermont Lt]

Let be honest. The run up in spending started in 2019-2020. Lack of fiscal responsibility has been the hallmark of both parties.

And hardly anyone is talking about it to either of the old coots running for President.

[SaveFerris]

Let’s be honest.

The real run up in spending was George W Bush nation-building.

The whole COVID-19 scam is because of Democrat Fauci and his gang.

The whole thing was contrived to control the masses.

Many were fooled, including President Donald Trump.

Joe Biden still sucks and always will.

[Vermont Lt]

We agree on ALL of that.

[SaveFerris]

👍👍👍

[Old West Conservative]

Yes here it is: Cut spending on everything except the military forthwith until revenues no longer exceed expenses

Simple enough for everyone?

I even typed slowly for those who had to take remedial math.