The Most Monstrously Overstimulated Economy & Markets Ever

Yves here. As we saw in the dot-com, later dot-bomb, era, market manias can persist longer than seems plausible. While I do buy Wolf’s contention that super low interest rates have resulted in virtually all investable assets trading at nosebleed levels for years (and generating appetite for scams like NFTs), it’s not the case that the economy is “monstrously overstimulated.” If we were at full employment, corporate profit share would be lower. See Kalecki for details.

By Wolf Richter, editor of Wolf Street. Originally published at Wolf Street

t’s mind-boggling just how many layers of stimulus were thrown out there, one layer on top of the other, $5 trillion by the federal government and $4 trillion by the Federal Reserve, all of it with follow-on effect as the trillions of dollars ricochet through the economy and the financial markets. And some of it hasn’t circulated yet and is just sitting there for now, such as some of the money sent to states and municipalities that are now floating in cash and that have redone their budgets, and they’re going to spend it eventually.

There were the many billions of dollars that big companies received. The airlines alone got around $50 billion, much of it in grants. They were supposed to use this money to keep their employees on the payroll, and they couldn’t do layoffs if they wanted to keep this money. So they offered big buyout packages to their employees, and lots of employees took that money and ran. Those were counted as voluntary departures and not as layoffs, and those folks went out and spent some of this money, and it flooded into the economy, and now the airlines are struggling to hire back employees, and they have lots of open positions.

Then there were the PPP loans. They’re forgivable, if you follow the rules, and so these loans would turn into grants, and this money was supposed to be for small companies, but even large chain restaurants and other large companies with good bank connections got their hands on it, and then smaller companies got their hands on it, and then everyone got their hands on it. Politicians and their families got it, the self-employed working from home got it, foreign fraudsters got it, everyone got it.

Some small fintech outfits started specializing in processing PPP loans, and they advertised everywhere, from NPR on down, and even on my humble site those ads started being served up by the ad exchanges. These fintechs developed an automated process, gave out a huge amount of money, these tiny outfits, and they didn’t really care who they gave this money to.

And some of this money was used to keep employees on the payroll, and it kept some companies alive.

But some brave economists have checked into the matter and found that the PPP loans didn’t in fact save many jobs and that the money was often handed to businesses that would have been OK without them.

In total, about $800 billion dollars in PPP loans were handed out, in three waves. That’s a huge amount of money. And like all these hastily engineered free-money programs, it triggered a tsunami of fraud.

There were other emergency loan programs from the government for small companies and not so small companies.

Then there were massive programs for states and municipalities. And some of these programs are now being set up to fund past-due rents for people who haven’t paid rent in a year-and-a-half. The purpose is to make landlords whole.

And many of these tenants that haven’t had to pay rent due to the eviction moratoriums at the national level from the CDC and due to the state and local eviction moratoriums, well, many of these folks received  unemployment benefits, including last year the extra $600 a week from the federal government, on top of the state benefits, and this year the extra $300 a week from the federal government – a combo that caused many people to make more money and pay less in taxes than before the pandemic.

And there are the huge federal unemployment programs for gig workers and those that don’t qualify under other programs.

These weekly unemployment benefits and top-off benefits from the federal government on top of the state benefits, well, they were explicitly designed to allow people to pay rent and health care.

But then the eviction moratoriums set in, and people didn’t have to pay rent, and they were living essentially free of housing costs and getting the extra unemployment benefits, and suddenly they had a lot more money to spend on cars and consumer electronics and all kinds of other stuff than they had before.

And they used some of this money to pay down their credit cards, and they used some of the money to catch up with their auto loans, and they spent a lot of it, and they contributed to the historic spike in retail sales and consumer spending on durable goods and non-durable goods.

It was, and still is, a huge massive gravy train, and now the back-rents are going to get paid by taxpayers to make landlords whole and to get tenants off the hook, after they’d spent their state unemployment money and the federal top-off benefits on other stuff.

In addition, the unemployment benefits came with tax benefits and in many cases with free health insurance through special programs under Obamacare.

Then there are the forbearance programs. At one point, over 5 million households put their mortgage into a forbearance program where they didn’t have to make payments, and those programs were extended and re-extended, with the support from the government-sponsored enterprises, such as Fannie Mae and Freddie Mac, and government agencies such as Ginnie Mae and the VA and the FHA.

And investors in mortgage-backed securities and mortgage servicers were made whole on these mortgages. And now many of these mortgages are getting modified or refinanced over longer terms and with lower rates, and payments are lower than they were before. And these people too were able to spend the money that they didn’t spend on mortgage payments on other things, even while they were getting the state and federal unemployment benefits that were designed to allow them to make mortgage payments.

And this money not spent on mortgage payments also contributed to the massive spike in retail sales.

Oh, and student loans. They were automatically enrolled in forbearance, and forbearance has been extended and re-extended, and many of these people have been working for years, and have good incomes, and didn’t lose their jobs, and could have easily made their student loan payments. But now the entire idea of ever making payments on any student loans has been written off and pooh-poohed as an absurdity.

These layers of money on top of layers of money, in form of money received from the government and in form of money not spent on rent or mortgage payments or student loan payments, could be spent on other stuff.

This came on top of all the money businesses got, from large corporations to the smallest outfits.

And all this money that wasn’t spent on debt payments and rent payments and the money that people and companies got, these huge piles of money, these trillions of dollars started circulating.

And then there was the Fed with its $4 trillion in asset purchases in 16 months. The Fed was and still is a huge relentless buyer in the markets, with the purpose of driving up housing prices and housing costs, and the prices of stocks and bonds and other kinds of speculative instruments. The purpose was to make the asset holders – meaning the people who are already wealthy – a lot wealthier.

And the asset holders booked huge gains on their bets and they too started spending some of this money, well, maybe not actually spending their gains by selling the assets, but borrowing money against their inflated assets, and then spending those borrowed funds. And they bought all kinds of stuff, from fancy houses to high-end trucks, and there was a huge boom in prices of fancy houses and high-end trucks and other stuff. And since these folks didn’t really care how much they paid, because if was just easy-come money, they sent prices rocking and rolling.

The Fed thereby, very purposefully and with utmost precision, created the biggest wealth inequality ever. It made the wealthy a lot wealthier, but people who have to work for a living suddenly have to pay a whole lot more for stuff they want to buy.

And these huge amounts of money are circulating in thick layers, and businesses are floating in it and consumers are floating in it, and state and municipal governments are floating in it.

$5 trillion in money borrowed by the government and $4 trillion printed by the Fed, plus the follow-on effects of the inflated asset prices, and historic leverage taken out against these inflated assets – and suddenly all kinds of prices are spiking as this money is trying to find a place to go, from consumer prices, to home prices, to stocks and bonds and cryptos and what not.

And there is so much cash out there that markets no longer know what to do with it, and over $1 trillion of it has been mopped up by the Fed via its reverse repo operations.

This is the most ridiculously monstrously over-stimulated economy ever, and markets have gone nuts. And prices are going nuts. This over-stimulation still continues, even as inflation pressures are bouncing through the economy, with price-spikes backing off here only to pop up there.

No one before has ever seen an artificially pumped up monster like this before. And no one has any historical guidelines on how to deal with it. The Fed will trim back its stimulus, but it’s already too late, and it will be too little and too slow.

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    1. Mikel

      Once the hype coaxes more money off the sidelines?

      There is selling going on now. But I’d imagine it takes a while for the whales to sell off large positions without spooking the marks.

    2. Objective Ace

      I dont see any reason it will. The only way it crashes is if we have a Paul Volcker 2.0 and the Fed jacks up interest rates up to 10 percent, stops all of its QE, and says — we dont care if there’s high (double digit?) unemployment rates. It’s plausible we have a “soft landing” where the Fed slowly raises rates over the next 3 to 5 years, but that wont result in any true “end”. The money is all ready in the system, the most we can reasonably expect is stocks and real estate to their return to their historic 2-8 percent average

      As an aside, I don’t like referring to this pump as “artificial”. There’s nothing artificial about it–the Fed printing is very real

      1. Sierra7

        Objective Ace:
        I would suggest it will not take a raising of interests rates to a Volcker style rise…….Remember what happened in the fall of 2018 when the FED raised the rates a part of 1% and the “moon exploded” in the markets. A mere 1% raise will turn this whole mess upside down. We are in perilous times. Yes, the “free” monies will carry a bit more. Our gov made huge mistakes in “08-09” not taking the main characters to the woodshed, remaking banks, etc., etc. They took the easy way out. May we all find better days.

        1. Objective Ace

          I’m not so sure that raising the federal funds rate to only 3 or 4 percent over a multi year period would really have that much of an effect on wealth. Yes–it’s likely growth would slow as we saw in 2018, but as other commenters have pointed out, the stock market is now detached from actual growth (way more then it was in 2018).

        2. djrichard

          Pretty close. The Fed Reserve only needs to raise their rate above the 10 year yield, say 15 basis points or so above (thus inverting the yield curve) to bring the party to an end. 10 Year yield is currently at 1.3%. 15 basis points above that would be 1.45%.

      2. Ian Ollmann

        That is, there is substantial inflation in the markets because that is where the money printing has been going.

        I note there hasn’t been as much inflation in real goods due to this because despite all the hype, the stock market and economy are quite disconnected (and increasingly so!)

        This, in the end, is a reason to be worried. The stock markets are empirically disconnected from reality.

      3. Jeremy Grimm

        Sorry, I do not see how Wolf Street’s MMT stance alters the particulars or generalities of this post. Shit loads of money were dumped on Big Money. Whether MMT or some other justification explains why … the shit loads of money dumped on our wealthy definitely has impacts. Our Big Money players are little affected and little affect the price of a bag of rice … but they do impact the price for a place to store that bag of rice. They do impact the price of a place to cook it. But far more importantly the Big Money players have an impact on the prices for housing, real property, and ‘investments’ — whether MMT or some other reason put that money in their hands, Big Money is driving up the price of real property, housing, and other investments. This is definitely inflation — and the old definitions are not applicable … or meaningful — and we who are not Big Money live the consequences.

      4. Mikel

        Is the Fed forcing institutions and investors to buy stocks? I mean actually forcing with threats?
        Like putting a gun to people’s heads?
        I was under the impression that was a CHOICE being made by institutions and investors.

        There are more responsible players than the Fed for the fact that there isn’t a desire to put the money being printed to use elsewhere.

    3. notabanker

      My guess is a hyper-disruption of the food supply. The land of make believe won’t be able to conjure up an app that feeds people if there is no food to be served.

      1. drumlin woodchuckles

        What happens when . . . the sheep look up and are not fed?

        Especially if some of the sheep have firearms?

  1. Anthony Stegman

    Wow…I haven’t received a dime of this massive taxpayer funded largesse. Where is my bailout?????

    1. juno mas

      You needed to be incarcerated to learn how to create an ID that garnered some of the largesse. It’s all a matter of whom you know ;).

    2. Fearn

      That’s because it’s not taxpayer-funded. It’s newly created money through deficit spending. Learn the difference.

    3. Whatdoiknow

      “You should thank God for bank bailouts— absolutely required to save your civilization.  So I think when you have troubles like that you shouldn’t be bitching about a little bailout.  You should have been thinking it should have been bigger.  You should thank God the government saved the big banks and their investors. 
      Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.  Suck it in and cope.” 
      Charlie Munger, Christian Science Monitor,  September 30, 2010

      1. poopinator

        I don’t doubt for a second that the quote is real. For today, I’m just not going to believe it for my own sanity. We are truly a familyblogged society

      2. drumlin woodchuckles

        That quote should be more widely publicised and spread around. And make it very clear that Charley Munger is Warren Buffet’s friend and Number Two and annointed successor.

        And we should bitch louder about bank bailouts. It makes Charlie Munger unhappy, and at least that’s a little something.

        And try torturing the government into letting the banks fall next time and run that little experiment as to whether its really so very bad for our civilization.

  2. Lou Anton

    >”No one before has ever seen an artificially pumped up monster like this before. And no one has any historical guidelines on how to deal with it. The Fed will trim back its stimulus, but it’s already too late, and it will be too little and too slow.”

    What’s the underlying implication from Mr. Richter? Get ready for Weimar? Permanently high plateau?

    I agree that it’s a strange situation where the Fed is working, in their minds at least, to both increase liquidity (via QE) and pull it back some (via repo), but when the patient (the US economy) starts exhibiting strange symptoms and reactions to various medications, you deal with them as the come. What I don’t know is whether Wolf is saying to “start fresh” or “pull the plug”. But just alluding to the money supply in absolute terms and saying how crazy high the dollar level is doesn’t really mean all that much in my opinion. In the end, it’s just fear mongering on deficits.

    1. davie

      It’s obviously fear mongering, because he doesn’t offer any solutions on how to de-escalate the situation, or even a thesis on what would have been an adequate level of stimulus as to compare this “monsterous” level too.

      Wolf, an avowed crusty gator fiscal conservative, prefers an economic system that advantages the debt collector rather than the tax collector.

      1. jsn

        A redistributive fiscal policy, “unpaidfor” that focused resources on the pain points in the REAL economy would be the logical way out of this.

        It would require a government that actually gave a **** about the general population, something like “common prosperity”, which is obviously communism.

      2. Anthony Stegman

        You may have missed some of Richter’s subtleties. For example, the rent moratoriums and subsequent payments to in-arrears renters was a transfer from taxpayers (many of them middle class) to wealthy landlords. In fact, most of the $5 trillion authorized by Congress eventually flowed to the most well off among us. It was and is an enormous taxpayer funded giveaway to the rich. At some point the taxpayers will have to pay back the incurred debt one way or another.

          1. Objective Ace

            I’m not sure its a such good deal for the tenants. At the very least, theyre still going to get their credit trashed and wont be able to get a good reference for future housing. They may even still end up with a lien on their paychecks–either by a landlord trying to double dip or the state trying to tie up its finances.

            What’s odd to me is the only state I’ve seen doing this so far is california. Arent they supposed to be the most anti-landlord state out there?

          1. Ian Ollmann

            They are loci of excess liquidity!

            Puts a different spin on “I am a tax payer and I have rights!” Doesn’t it?

          2. drumlin woodchuckles

            No? Well then, what do taxpayers pay?

            We certainly pay taxes. And we are not allowed to decree money into existence to pay those taxes with. We have to work for an employer to get paid in already existing money in return for work that we do or did. So we are paying real value denominated in money.

            So if we aren’t paying for FedGov spending with our real hard-earned value-as-money when we pay our taxes in that money we had to create value in order to get, then what are we paying for when we pay that money?

            1. notabanker

              Taxes destroy money. It’s how the government regulates access to resources. It has nothing to do with how the Federal government decides to spend. If it did, the US would have been tits up decades ago.

              They tax you to keep you working for the dregs they bailout to keep whole. And before you ask ‘why would they do that?’ , it’s because they work for them too. At least in the US.

              1. Michaelmas

                notabanker: They tax you to keep you working for the dregs they bailout to keep whole.


                The Fed fed more than $28 trillion to bankers and asset holders around the world after the 2008 GFC in order to keep them rich. That’s about five times more than the amount that this time they’ve fed the general populace (and the majority of that relief money ended up going to corporate troughs and the rich anyway).

                Given that perspective, I’m not particularly impressed with Wolf Richter’s belly-aching here about a pissy little $6 trillion.

              2. drumlin woodchuckles

                Then if I am somehow able to produce some of what I use my very own self, without having to work for “money” to “buy” it with, am I therefore partially removing myself from that system by ” just that much” ?

                And if I am, am I attriting and shrinking that system by “just that much”? Not in fact to where the system lords would feel it, but just strictly in theory?

                And if I am, what if a hundred million other Americans began producing a little bit more of what they need than what they are producing now? Would that attrit and degrade the money domination system by a hundred million little ” just that muches”?

            2. Daniel LaRusso

              don’t think of taxes as “getting anything”, think of taxes as how we “destroy” money. We need to destroy the money to balnace out the “creation” of money. Or we get bad stuff happening if there is too much money sloshing around becasue it keeps on growing forever.

              1. drumlin woodchuckles

                If you are correct, then taxes are indeed necessary to destroy money to avoid too much new government money from staying in existence and sloshing around as it grows forever.

                And if that is true, then Federal Taxes create the ongoing “headroom permission” for Federal new money spending without infinite new money building up and sloshing around.

                And if THAT is true, then Federal Taxes are necessary to permit Federal spending and saying that the taxes don’t “fund” the spending is a distinction without a difference to the people who are forced to produce real value doing real work so they can pay some of that real value to the government as taxes.

                This refusal to accept that if taxes are necessary to prevent money slosharound-buildup, then taxes are still necessary to permit Federal spending. Just as necessary as if the taxes are what fund the spending.
                So the MMT community looks like it is trying to pull a sleight-of-mouth bait-and-switcheroo mind game when it tries to dis-translate “taxes don’t fund Federal spending” into “taxes are not necessary”, which is the impression the MMT community very cynically tries to foster without quite saying so in a non-escapable way.

      3. brice

        Snapshot Of Our Calamity Economy
        by Wolf Richter • Sep 15, 2011
        The economy is going back to hell, but stock markets are surging. Nothing new. We’ve been there before. It always ends in tears. But this time, the Fed’s money-printing strategy will make things only worse. Today’s horrid numbers show us why.

    2. Adam Eran

      Weimar didn’t result from too much money emanating from government. The Germans were slow in coming up with the payment (actually telephone poles) they owed France, so the French invaded, and shut down, the Ruhr. Roughly like the Canadians invading Ohio, and shutting that down.

      The subsequent shortage of goods kicked off the hyperinflation.

      Similarly, in Zimbabwe, as the Rhodesian farmers left, and Mugabe distributed farmland to his minions, food production declined. Note: you have to have a tsetse fly eradication program just to raise livestock in that part of Africa, and I’m guessing the newly-independent Zimbabwe wasn’t up to that.

      Anyway, a food shortage ensued, which led a previously food-independent nation to have to import food. After all that, the hyperinflation arrived.

      It’s typically a shortage of goods that leads to inflation–like the Arabs’ “oil weapon” in the ’70s. JFYI, 1971 was (pre-fracking) peak oil for the U.S. and when the Arabs expressed their dissatisfaction with the Yom Kippur war by withholding petroleum, it was the first time the U.S. couldn’t produce its way out of a shortfall. The 1971 price of a barrel of oil: $1.75. That price quadrupled overnight, and peaked out at $42/bbl in 1982 (about its current, inflation-adjusted price). Alaska’s North Slope came online then, and the price retreated to ~$10, making Ronald Reagan one of the luckiest presidents ever. Anyway, the inflation of the ’70s comes from this, not excessive government money printing.

        1. anon y'mouse

          don’t spread brain worms. it helps no one and reinforces faulty knowledge already instilled in the public with the words “Weimar” and “Zimbabwe”.

          nor use terms like “gov’t is like a household”.

          you might know in what sense you are using those words, but for average reader, you sadly reinforce Owning Class propaganda.

          1. Daniel LaRusso

            my late dad use to turn the channel when any “expert” said “…running a nations budget is like household finances.”

            They were good times

          2. Basil Pesto

            I would add that if you start slinging epithets like “Owning Class propaganda”, you will immediately cause those you most need to reach to switch off.

            Explain the tenets of MMT as apolitically as possible to laymen, because as a description of Where Money Comes From, that’s what it is. As soon as people think you have an axe to grind, they will become suspicious of your motives and what you’re trying to sell them.

      1. lance ringquist

        and just think, the worst policy blunder in american history, bill clintons free trade, a lot of that money has been sent overseas, driving up huge bubbles in commodities, that a lot of that money will come back to the u.s.a. in the form of so called investments and inflated consumables, driving the bubbles and prices ever higher.

        1. drumlin woodchuckles

          A culture of ” Fair Trade Resistance” against the “Free Trade Occupation Regime” would figure out how to find and publicise the existence of such relict made-in-America thingmakers as still exist, so that members of the Resistance could buy those things instead of buying things from the Free Trade Occupation Regime.

          Perhaps such a culture of Fair Trade Resistance could recruit so many members that they would become aware of eachothers’ existence in their millions, and then in their tens of millions.
          And they might try figuring out how to create a political strike-force battle-force war-force to conquer the country and the government from the Free Trade Occupation.

          And then abolish America’s presence in the Free Trade System, and maybe hold mass-extermination physical whole-sale mass massacres of the defeated Free Trade supporters in order to make sure they are really all dead enough to where they can’t launch a Free Trade Counter Revolution.

      2. Ian Ollmann

        Dear Canadians,

        We’ve been to Ohio. Some of us have relatives who used to live there. It’s pretty clear we haven’t done much for the place. Perhaps you’d have better luck with it?

        It could use more moose, for one, and maybe you have some better ideas for football.

        With Love,

        Your Southern Neighbors Suffering Biblical Plagues Through Absolutely, Absolutely No Fault Of Our Own

      3. Synoia

        The white Zim, farmers wanted to farm. Which is a high risk, hard work business.

        Mugabe’s “connected” substitutes for the farmers did have a passion to farm. The just wanted the farm revenues..

        The cronies also ejected the small villages of farm workers on many seized farms, so eliminating the trained farm worker labor pool on each farm.

        It wan not only;y Cattle. Tobacco was a major cash crop which , requires careful farming, and finally most farms had a healthy cereal crop .

        In addition pest contrail and water management is a requirement on those farms, form sources, to copses, to run off collection.

    3. Larry

      Is this truly unprecedented? New Deal plays WWII unleashed a torrent of stimulus. Granted, from the pits of the depression.

      1. jsn

        It takes existential fear on the part of the elites, fortunately experienced on our behalf by the Brits in the Blitz, to get them to share crumbs with society at large.

        And that was only after Huey Long and Father Coughlin beta tested some other frightful options domestically.

      2. lance ringquist

        we were protected by smoot-hawley. and after WWII, GATT. so we could absorb much of what we produced. the percentage of GDP from trade was less than 10% in the 1950’s onwards till nixon.

        inflation was countered by strong unions and protectionism.

        much to agree with, except, Rodrik is wrong, free trade can never work. in fact, i think he has wavered a bit and no longer is a feverish believer.

    4. lordkoos

      He’s a deficit hawk, but the high level of the dollar is pretty mysterious given the current level of inflation. Since the USD index is measured against other currencies, it’s like the least dirty shirt in the basket…

  3. Mikel

    I have a new, catchy title for your article and much of what you are describing in this recap: The Adventures of Short-Term Thinking.

    And on this part:
    “These weekly unemployment benefits and top-off benefits from the federal government on top of the state benefits, well, they were explicitly designed to allow people to pay rent and health care.”

    I’d say more designed to allow people to health insurance. Healthcare systems are still being overwhelmed, so it really doesn’t matter for some if they have the money to pay for it. Example: no beds in the hospitals, shortages of nurses, and shortages of drugs for treatments can remain for a long time, but health insurance premiums are still due. And even if you don’t get the care you need, there are some that do and insurance costs are jacked up based on that.

  4. Jeremy Grimm

    I am going to risk a spanking from Yves. I believe the ‘US economy’ is overstimulated. I believe the US economy of Keynes and Kalecki no longer represents the current US economy. “If we were at full employment, corporate profit share would be lower.” That was true when the US economy produced goods. I suppose it still does, but I am not sure what or how many. Today’s world is a world of globalization and labor arbitrage. Today’s world is a world of International Cartels who control Government and Media and have successfully made labor actions and public dissent illegal. I suspect a greatly increased demand for widgets has little or no impact on the corporate profit share, or US wages in the making of widgets. The US makes widgets never more.

    I also believe the US has two economies — at least two — an economy of goods and services, and an economy of assets. [I suspect there is even more fragmentation of the US economy, but have no sense of its form.] The Government has greatly inflated and continues to inflate the prices for assets, including vital assets like real property and housing. The Government has also — almost as a side effect — inflated prices for basic goods and services. There is some upward push on wages for services. But the Cartels hold considerable monopsony power and reluctance to raise wages. The Cartels also control Government and Media. The Cartels’ long demonstrated tacit agreements among them, to spurn price competition in favor of advertising and marketing competition leads me to believe Cartels have and will use their control of Government and Media to to spurn wage increases, here and abroad. The low interest rate environment further spurs this thrust of the Cartels by making automation more attractive.

    1. Sierra7

      Jeremy Grimm:
      For what you covered, nicely said.
      I would just add, “What’s gonna happen when the mark to market rules” are again enforced?????? I believe those changed in early ’09 and the stock market immediately skidded it’s dive and began an upward move that has not ceased yet.
      And, yes the big battles are global competition and now severe shortages of so many “things” that inflation is really beginning to rage.

      1. Jeremy Grimm

        I am not sure how to answer your comment. Your concept of “mark to market rules” assumes that there is some kind of market, and some kind of market to mark the market to. What market? I fear that when any sort of market comes to bear on our current malaise — there will be hell to pay. Your concerns about when the “the mark to market rules” are again enforced?” might be only one among many concerns when the shit hits the fan.

        1. tegnost

          I think nowadays it’s mark to model where the fed buys securities for what the banksters say they are worth…that was a key feature in the ’09 reflation of the insolvent, not sure it’s still going on but I can’t imagine they stopped…

    2. notabanker

      Almost every business conversation I have had over the last two months involves severe labor shortages, open positions, no candidates etc…. Not a single one discusses advertising the jobs for more money.

      1. Daniel LaRusso

        The local supermarket manager is blaming Brexit becasue he can’t find any staff. If he walked out of his main entrance he’d see a regular homeless guy and his dog and some tracksuit wearing teenagers smoking in the rain. The major incentive for them to work is the wages … do you think he will EVER agree to raising them.

  5. Carla

    Wolf: “It made the wealthy a lot wealthier, but people who have to work for a living suddenly have to pay a whole lot more for stuff they want to buy.”

    I’m more worried about both those who work for a living and those who don’t or can’t, having to pay a whole lot more for stuff they HAVE to buy.

    Like food. Prices in the groceries stores around here (NE Ohio) are climbing FAST, as are energy prices.

    1. drumlin woodchuckles

      How many of the people you write about live in apartments with zero access to gardenable land? They are in immediate and ever-growing danger from what you describe.

      How many of the people you write about live in real houses with real yards around them? How many of those yards could support high-production intensive gardens after a few years of preparatory hard work if the house-and-yard owners start that work starting now? How much would that ease the strictly food-prices part of the threat to their survival? How many of those who “could” do this are doing it?

  6. JohnH

    They’ve been kicking the can down the road for a decade, getting ever more creative and desperate with their stimulus, trying to keep the economy afloat. It makes you wonder what they will do for the next act. Beyond QE with massive fiscal stimulus, what is there?

    1. MonkeyBusiness

      Direct purchase of stocks. Provide a floor to the stock market by agreeing to intervene whenever stocks fall below a certain level.

      The BoJ has been buying ETFs for quite a long time. We can do the same only bigger. The Japanese came up with the Building Back Better slogan. For us it will Buying Stocks Bigger.

      1. lordkoos

        I thought they were providing that floor — isn’t there an entity commonly known as “the plunge protection team”, AKA the Working Group on Financial Markets?

        1. Ian Ollmann

          I can’t see how this ends well. If companies can just sell bonds and buy back stock unchecked, with stockholder primacy, there isn’t really any reason to have operations serving the economy anymore except perhaps as a gentleman’s hobby (see family farming). The real economy is just an expense easily pruned off of the P/L column.

          Too much trouble.
          Labor issues.
          Excess regulation unrelated to stock price.

          This is why we historically enforce discipline on borrowers and if need be, profligate lenders. When the lender is the sovereign authority and can just print more, it starts to look like the end result will be economic rot all the ways down.

        2. MonkeyBusiness

          The point here is, do you see stocks on the Fed’s balance sheet? Now it’s totally possible the Fed has a Mission Impossible style unit somewhere with a separate balance sheet. Why not really? It’s just another crime that will be overlooked. Another “For The Greater Good” operation.

          I am however talking about the Fed openly buying stocks and putting them explicitly on their balance sheet. “Long Term Investments” that will start at a valuation of billions of dollars and ending up around pennies so that our squillionaires can pick them up cheap.

    2. Objective Ace

      Its been going on well longer then a decade. At least back to the 60s and 70s with the creation of conventional loans and direct government interference in the housing market. Short term thinking–making housing more affordable by subsidizing home buyer purchases only increased prices in the long run without doing anything for affordability. More and more interference was necessary to keep prices at their inflated values.

  7. Mason

    You can’t really think out what exactly is happening, no-one has the full picture. Whether your a populist on the right or left, all what you do know is how rigged the system is.

    It’s a growing tension in my gut, can anyone else feel it? Something has to give?

    I started feeling it in about late ’16 and it seriously limited what I did in terms of real estate.

  8. MonkeyBusiness

    I am not going to comment on his bets. But Wolf is deep down an optimist I think. He thinks the Fed will “eventually do the right thing” because Janet Yellen raised interest rates a few times the last time around.

    1. Kurt Frederick ZUMDIECK

      But there will no raising of rates this time. It would tip over the .gov(s) debt piles that is dependent on low-interest rates. That mountain is teetering and will fall eventually. All high-level politicians know the default is coming, but they dont want it to happen on their watch, so like one of the commentors up this thread so aptly stated, everything is about kicking the can down the road. And making sure the other side takes the fall.

      The HUGE economic time bomb lurking out there is the leveraged derivative market. Probably a lot of the debts inside that are arbitraged low-interest rate monies that come straight from the Fed. Bets on those money rates not going up is probably in the trillions of a multi-QUADRILLION market, which is really leverage upon leverage….. when it unwinds, we will have financial armegeddon.

      Some people don’t sleep at night, knowing they will wake up one morning and all this can-kicking will be for naught – Black Swans in their dreams.

      1. lordkoos

        “…making sure the other side takes the fall.”

        Perhaps this explains the Democratic party, who seem to care little whether or not they win elections, at least in the near term?

      2. MonkeyBusiness

        I agree with you. I see the Fed raising 25 bps here and there as part of their Kabuki, but they’ll be forced to take it down again before too long because the markets can’t stand it.

      3. chuck roast

        I think that are talking about US sovereign debt default. I fail to see how this can happen in an environment where The Fed acts as the de facto world bank…until, of course, it happens.

      4. jsn

        Sorry, but gov debt at the Fed level isn’t subject to interest rate risk, it’s debts are all denominated in the money it makes.

        It’s using that power to make money now to prop up all kinds of zombie companies and to sustain all kinds of malinvestment, but the Fed can’t run out of money or go insolvent.

        However, more and more of the world is choosing to not use dollars or actually being forced to not use them as an expression of our elites death wish, so a time will come when external resources start to become really expensive and that external reality will start to upset all kinds of odd arrangements depending on free money from the Fed.

        1. drumlin woodchuckles

          So the Fed can’t run out of money. But what happens if the money runs out of value?

          1. jsn

            I expect, “gradually, then all at once” we’ll find out!

            Tooze has an interesting post up about the China Inflation in the 30s & 40s, over a hundered times worse than Weimar , that maps out a worst case analogue.

            However our endgame plays out, it’ll be contextualized by climate change. Promises to be interesting.

            1. drumlin woodchuckles

              Hopefully the “man made global warming” denialists will be the first to die off.

              Hopefully not a single one of them will survive, or will be permitted to survive, anywhere on the earth.

  9. NelsNelson

    I regularly view Wolf Street because he has a lot of interesting charts. As for his analysis and opinions, I find most of them come from the old Milton Friedman monetarist MV=PT school. He has stated on many occasions that MMT is bunk and you can see this in his constant use of verbiage such as the government is “borrowing” money and the Federal Reserve is “printing” money. He does not distinguish between credit money created by the banking system and how that inflates asset prices or fiat money spent into the economy by the treasury. I’m not here to defend the Federal Reserve because they have been responsible for creating a situation where they live in mortal fear of another Irving Fisher/Hyman Minsky debt deflation which the pandemic threatened to trigger. Wolf’s running around with his hair on fire shouting about hyperinflation, Weimar Germany, Zimbabwe and destroying the dollar isn’t doing us any good. But his loyal fans which most likely wandered off of the Zero Hedge reservation sure love him.

    1. korual

      Monetarists and Wolf Street believe the V for velocity in MV=PT is constant or irrelevant. That is the flaw in his argument. There may be vast quantities of liquidity, but it is hardly moving, it just gets added to savings/investments.That’s why we’re not drowning, or to use another metaphor, not being electrocuted because the voltage is high but the current minimal.

      1. NelsNelson

        As per Steve Keen, V used to be about 4 when income was more equitably distributed but with the increasing percentage of income going to the top 10% V has dropped to about 1.

    2. Wukchumni

      Wolf’s running around with his hair on fire shouting about hyperinflation, Weimar Germany, Zimbabwe and destroying the dollar isn’t doing us any good

      To be fair, I don’t remember Wolf ever mentioning much about hyperinflation, which will need a new name when we figure out how you can get there from here, as it needs a physical prop-and digital money in no way shape or form figures to do that.

      Instead of the slow grind of hyperinflation (instances usually take a few years to play out, sometimes a country can be under the influence for decades) I expect something to happen all of the sudden with no warning, with the majority of $ holders worth wiped out, signaling a new financial aegis is upon us, whatever it might be, perhaps back to the future, or merely bedlam.

  10. Gulag

    Abba B. Lerner in his 1943 article “Functional Finance and the Federal Debt,” stated that “Many of our publicly minded men who have come to see that deficit spending actually works ( especially in the context of U.S. economic spending for World War II)– yet, still oppose the permanent maintenance of prosperity because in their failure to see how it all works they are easily frightened by fairy tales of terrible consequences.”

    Unfortunately, it is also clear from history that Imperial Japan and Nazi Germany similarly came to understand the miracles of functional finance which allowed them to pursue a pairing of rearmament with an expansionary economic policy. What contemporary social-democratic advocates of MMT spending appeared to have forgotten is that such a spending strategy is most easily adoptable by authoritarian political movements that achieve potential totalitarian state power whether of the Right or Left.

    Our contemporary U.S. military/surveillance megamachine participants may be silently thanking, supposedly radical MMT advocates, for their World War II economic insights and their continuing generosity to modern U.S. state power in the 21st century—whether that power is represented by a Trump or a Biden.

    1. jsn

      Odd to blame those who would understand the power of a tool to do good for many for the malevolent intentions of sociopaths who’ve been actively using that tool for their evil purposes at least since Dick Cheney said,”deficits don’t matter.”

      Tools do have inherent political biases based in how they interact with evolved human heuristics, and money is inherently centralizing with attendant authoritarian risks.

      That’s no reason to abandoning understanding of it to the activity evil, this was the error of the Carter administration that set Capitalism on the path to burning the world. You think you can take that psychotic profit machine on without understanding it’s basic tool?

  11. fried calamaty

    Any analysis of inflation that does not account for the effects of supply chain disruptions over the past year is incomplete.

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