After 8 years of near 0% interest rates, Trump has faced all most 100billion in debt service because of rate hike in the last year and of course the bond market can sense the pressure. If anyone is responsible of an over heated market it is that same people who created the last two bubbles… The FED
The bond markets are going to be trouble. Do your best to get ready for an upcoming economic debacle. This one might even be worse than the 2008/2009 downturn.
Here is an interesting article on the matter.
Regardless of you politics, I do honestly believe that the FED kicked this can as far as they could… While Trump is a handy target, thought this would happen last year…
It will be worse, we are addicted to cheap debt, if interest rates rise by just a little it can literally destroy the economy and we will have zero options other than quantitative easing.
This is the important thing to watch as we get ready to blow through trillion dollar deficits.
Treasuries found little support throughout the trading session – no more month-end buyers like pensions and index funds to step in, and little sign of demand from Asian buyers.
Anyone that thinks buyers are going to continue to purchase our debt at these low interest rates are smoking something.
And since we are running on extraordinary measures by raiding all the accounts in the federal government and are very close to running out of money we are literally about to have to put up for sale $500+ billion dollars worth of them so we can replenish those accounts and pay monthly bills.
Yay tax cuts! But in reality the tax cuts are a sign that the US is simply not serious about fiscal responsibility and really does look like it is not planning on ever paying back all of this debt.
We have rolled through years of ‘costless’ borrowing and managed to push, at least some of the debt out to 30 year bonds but I suspect that future debt will come back to the more affordable short end and a constant churning of those bonds…
We differ on political affiliation but on this we can agree. I’ve been worried about rates for quite a while now and have been waiting patiently for the Fed to do something. As QE tapered the rates should have increased. That didn’t happen.
Of course, from my perspective the fiscally prudent think to do would have been to purge the system of bad banks back in 2008… Firstly it would have at least attempted to stick to decent capitalist approaches to business and secondly, even if it had thrown the world into a depression (which I don’t believe would have happened… we handled the S&L problem through consolidation good money and letting the bad money go to the investor with major disruption) I would have clears much bad investment world wide and the entire system would have balance and recovered by now… As it is, the central banks of the US and Europe have an empty tool box…
I just finished my 3rd round of graduate level econ courses. This was a big topic of discussion. Yes, I do believe that there is far more pain to come.
We have been operating our economy for quite some time based on what amounts to deficit spending in the furtherance of asset appreciation (bubbles).
And with the forthcoming tax cuts, I’m afraid that we are further increasing in that pursuit. Taxes have been cut without the necessary reductions in spending. Thus, the purposeful decreases in federal revenues, will present a much more difficult ability to arrest the next inevitable downturn.
This of course becomes the political foot ball. Democrats will say ‘defense’… and while I most certainly agree that our foreign policy is a gross distortion of the words ‘Provide for the Common Defense’… we many things broken in our ability to defend ourselves. (I.E, Fields of mothballed tanks that likely are not part of the modern battlefield.
They have no inclination to back track on their ‘accomplishments’ in building the social state. Of course entitlements are some 2/3rds more than defense and are 100% of the unfunded liability. It is time for the people of the US to understand that sometimes you just have to live with a ford escort because you just can’t afford the up keep of an Escalade . We also have to have a serious constitutional discussion over just what the National government is authorized to provide in our Federalist republic…
Related to this take a look at the recent Dow losses. I just love the way conservatives claim that the markets are all scared because of the minimum wage increases that resulted in a 9 cents average wage increase for the month of January and it is those increases that are about to trigger runaway inflation.
No, the dance is that if interest rates start to rise enough to attract a trillion dollars, then where will the money come from to keep inflating the price of the Dow?
And since the economy has to take on $3.25 dollars in new debt for each dollar of GDP growth, what is going to happen when we can’t continue to issue that much debt year after year?
Lordy, what I would pay to have competent people in charge…
But the TIC has been out there loudly bragging on himself, as he is want to do, over the performance of the stock market. Who wants to bet he’ll be completely silent, or worse yet, reach back to Obama to blame for any eventuality in stock crashes.
I’ll reach back and blame the FED and the congress as I did in 2008… they acted totally inappropriately…
That’s right. Trump wants to claim that all of the market rises have been because of his leadership. If that’s the case then any market failures are also because of his leadership.
I also think that’s a fair implication.
Isn’t that what obama did for 8 entire years… and now he wants to take credit… will he take credit for the crash?
Neither Obama nor Trump gets credit or blame. But none are as braggadocio as Trump when it comes to taking credit for things he has no part in.
Now you can rightly stay that Obama is far more eloquent in his speech and manner but do you not recall the more than obvious use of personal pronouns EVERYTIME he opened his mouth…
If there is no demand for our debt, then we really have a very significant snowball coming. We’re not the only government issuing a lot of debt, all of them will have to start raising interest rates to attract money, if they are successful then the money that is in the stock markets will move out and into bonds. What then happens to companies who have been on a borrowing binge to repurchase their stock as they take losses on the value of that stock?
Additionally that portends the loss of demand for stocks where we are already seeing shares outstanding decreasing significantly indicating that there is no real investor demand for stocks either.
An increase in interest rates will very quickly price any remaining potential buyers out of the housing market given where housing prices are currently sitting.
An increase in interest rates will cause a recession very quickly, that means layoffs, that means those trillion dollar deficits soon turn into 1.5 or even two trillion dollar deficits because employment and tax revenues drop. An increase in interest rates will also mean a significant increase in the interest we already pay on the debt, 5% interest on $20 trillion dollars is a trillion dollars a year in interest alone, enough to fund a ten year infrastructure improvement plan on one years interest alone.
If our balance sheet looked like it did in 1987, 2001 or even 2008 it would be one thing, but that is not how it looks, if we were a company looking to raise money with a balance sheet that looks like ours, then our bonds would be junk.
There is no way Hillary or any Democrat would have passed such a fiscally irresponsible tax cut. It has literally signaled to the world that we have lost all sense of fiscal sanity and we are very likely to pay for it dearly.
We still have that foreclosure moratorium crisis for the hurricane ravaged areas coming and congress still is a few hundred billion dollars from relief money for those disasters as well as the California wildfires and we are but 4 months away from another season starting again…
Not sure that Trump gets the blame for this anymore than he got the credit he’d been stealing weekly since long before his budget even superseded Obama’s on October first.