Current Inflation Index Reports and Fed Policy/Actions

[Chuckanut]

Largely in line with expectations.

Indeed! For the past few years I’ve been saying the glide path to 2% will be a long rough one mainly due to the massive deficits being run up by the Federal government. I hoped I was wrong. Sadly, this is a time when being right feels like losing.

Oil and the war may be transitory. But so far Federal excess does not seem transitory at all. In fact, it’s business as usual, SOP, What else is new, etc.

What now? I don’t know. But, I am thankful for the TIPS and Ibonds in my income investments, and the hybrid vehicle in my garage.

 

[Montecfo]

Indeed! For the past few years I’ve been saying the glide path to 2% will be a long rough one mainly due to the massive deficits being run up by the Federal government. I hoped I was wrong. Sadly, this is a time when being right feels like losing.

Oil and the war may be transitory. But so far Federal excess does not seem transitory at all. In fact, it’s business as usual, SOP, What else is new, etc.

What now? I don’t know. But, I am thankful for the TIPS and Ibonds in my income investments, and the hybrid vehicle in my garage.

It is a realistic view. Even modest attempts to cut spending are met with outrage.

Although right now the immediate driver is the war.

Of course, if you are negative on the deficit getting under control I am not sure TIPS (or any US govies)would be a clear solution. How will debt situation get resolved?

Debt restucturing seems a possibility.

 

[Fermion]

It is a realistic view. Even modest attempts to cut spending are met with outrage.

Although right now the immediate driver is the war.

Of course, if you are negative on the deficit getting under control I am not sure TIPS (or any US govies)would be a clear solution. How will debt situation get resolved?

Debt restucturing seems a possibility.

How does that work when things like SS are invested in the debt via bonds?

 

[Montecfo]

How does that work when things like SS are invested in the debt via bonds?

SS is not invested in TIPS. But the answer I think is straightforward: Don't restructure the special purpose treasury obligations held by the social security trust fund.

Also, please understand: I am not pushing this as our future. I'm just stating I think there's a non-zero risk of this being part of a solution ultimately given everything else.

 

[Chuckanut]

Of course, if you are negative on the deficit getting under control I am not sure TIPS (or any US govies)would be a clear solution. How will debt situation get resolved?

Debt restucturing seems a possibility.

TIPS are not the only thing a person might use
.
Diversification is still the key to surviving uncertain times, IMO. What else is new?

 

[Fermion]

SS is not invested in TIPS. But the answer I think is straightforward: Don't restructure the special purpose treasury obligations held by the social security trust fund.

Also, please understand: I am not pushing this as our future. I'm just stating I think there's a non-zero risk of this being part of a solution ultimately given everything else.

But I mean if you are going to go there, then what about the government doing a one time wealth tax on all stock accounts in order to pay down the debt. Anything is possible right?

 

[MichaelB]

SS is not invested in TIPS. But the answer I think is straightforward: Don't restructure the special purpose treasury obligations held by the social security trust fund.

Also, please understand: I am not pushing this as our future. I'm just stating I think there's a non-zero risk of this being part of a solution ultimately given everything else.

I agree the risk is non-zero, but I think Treasury and the Fed have other options yet untried. I also think the Treasury and Fed will monetize the debt before defaulting on it.

 

[Montecfo]

But I mean if you are going to go there, then what about the government doing a one time wealth tax on all stock accounts in order to pay down the debt. Anything is possible right?

Not enough there to really solve it. And capital flight makes it more expensive.

 

[Turbo29]

How does that work when things like SS are invested in the debt via bonds?

That won't be an issue in about six years. When the SS Trust Fund is exhausted, SS won't have anything invested in bonds.

 

[Fermion]

Not enough there to really solve it. And capital flight makes it more expensive.

The total value of the US stock market is 75 trillion. A 25% tax would go a long way toward paying down the debt.

 

[dickoncapecod]

The total value of the US stock market is 75 trillion. A 25% tax would go a long way toward paying down the debt.

It would have to be more clever than that ---- what you propose is simply an illegal asset seizure rather than a tax.
Regards, Dick

 

[USGrant1962]

The total value of the US stock market is 75 trillion. A 25% tax would go a long way toward paying down the debt.

Would also crash the stock market permanently

 

[Montecfo]

I only mentioned it as I think it must become part of the analysis at some point. Former Treasury Secretary Paulson spoke if needing an "emergency break glass" plan.

https://www.thestreet.com/economy/henry-paulson-has-blunt-message-on-potential-treasury-market-shock

Jeffery Gundlach has spoke several times about US Treasury debt being "restructured".

Whatever happens is likely to be under duress as I doubt Congress acts before we are in crisis.

 

[JoeWras]

Did I see the "T-word" used up thread? We know what happened the last time that word was in fashion.

 

[Koolau]

Debt restucturing seems a possibility.

What does that look like? I'm not really familiar with how that w*rks.

 

[Montecfo]

What does that look like? I'm not really familiar with how that w*rks.

change the terms of debt. The government did this in the GM bankruptcy for example.

Gundlach has theorized that interest rates on govenemt bonds could be reset lower, say to 1%.

Obviously, you need to have an otherwise balanced budget because you will have no ability to borrow.. Unless you restrict it to foreign borrowers for example.

This is a bad idea I think. The best and most painless approach is to cut spending sufficiently that the deficit is growing more slowly than the economy. Keep the economy growing. This may convince markets that you have the issue in hand.

But Congress will do the right thing only when forced it seems.

And the problem is we don't know when we will hit the wall but we have done little to steer away from it.

 

[Koolau]

change the terms of debt. The government did this in the GM bankruptcy for example.

Gundlach has theorized that interest rates on govenemt bonds could be reset lower, say to 1%.

Obviously, you need to have an otherwise balanced budget because you will have no ability to borrow.. Unless you restrict it to foreign borrowers for example.

This is a bad idea I think. The best and most painless approach is to cut spending sufficiently that the deficit is growing more slowly than the economy. Keep the economy growing. This may convince markets that you have the issue in hand.

But Congress will do the right thing only when forced it seems.

And the problem is we don't know when we will hit the wall but we have done little to steer away from it.

I guess I never thought of our gummint doing such a thing. You're right that it would end most gummint borrowing - certainly among the folks here.

Thanks for the explanation.




Heh, heh, I always heard it: Congress will do the right thing only when all other options have been tried.

 

[dickoncapecod]

I only mentioned it as I think it must become part of the analysis at some point. Former Treasury Secretary Paulson spoke if needing an "emergency break glass" plan.

https://www.thestreet.com/economy/henry-paulson-has-blunt-message-on-potential-treasury-market-shock

Jeffery Gundlach has spoke several times about US Treasury debt being "restructured".

Whatever happens is likely to be under duress as I doubt Congress acts before we are in crisis.

For a guy who attracts a lot of ears and eyeballs, Jeff has a remarkable record of making exaggerated wrong way calls/suggestions.....but they do draw attention.
Regards, Dick

 

[dickoncapecod]

I guess I never thought of our gummint doing such a thing. You're right that it would end most gummint borrowing - certainly among the folks here.

Thanks for the explanation.




Heh, heh, I always heard it: Congress will do the right thing only when all other options have been tried.

What silly predictions of a breach of contract like lowering Treasury coupons overlooks is the outcome: a nation that has benefited mightily from the strength of contract law, the deepest and most liquid sovereign debt market on tne planet and the global reserve currency would immediately be unable to issue/sell additional Treasury debt denominated In its suddenly trash currency.

The danger in idle speculation about such silliness is that poorly informed investors might believe it and take disastrous actions.
Regards, Dick

 

[mrfeh]

PPI much hotter than expected for the 2nd month in a row.

1.1% MoM

 

[Montecfo]

What silly predictions of a breach of contract like lowering Treasury coupons overlooks is the outcome: a nation that has benefited mightily from the strength of contract law, the deepest and most liquid sovereign debt market on tne planet and the global reserve currency would immediately be unable to issue/sell additional Treasury debt denominated In its suddenly trash currency.

The danger in idle speculation about such silliness is that poorly informed investors might believe it and take disastrous actions.
Regards, Dick

Well, I certainly did not miss any of that since I addressed it up thread. And that "poorly informed investor" thing cuts both ways doesn't it?

I don't dismiss Paulson, Gundlach and others because they have credibility and because the outcome is unknown.

But given you think this is all silliness, what do you think will happen? How will our mountain of growing debt be addressed?

 

[Dtail]

For a guy who attracts a lot of ears and eyeballs, Jeff has a remarkable record of making exaggerated wrong way calls/suggestions.....but they do draw attention.
Regards, Dick

Yup, been calling him out on this forum for many years.

 

[dickoncapecod]

Well, I certainly did not miss any of that since I addressed it up thread. And that "poorly informed investor" thing cuts both ways doesn't it?

I don't dismiss Paulson, Gundlach and others because they have credibility and because the outcome is unknown.

But given you think this is all silliness, what do you think will happen? How will our mountain of growing debt be addressed?

Well, my post was certainly not intended as some sort of personal challenge to you, pretty clearly because 1) it was not a response to your post, and 2) it amplifies one of your points.

How will we address debt growth? Easy: we will raise taxes on corporations and individuals. Tariffs were a start at increasing corporate taxes, but we will need to increase corporate taxes significantly as well as those on the growing 100+k indivudual cohort, including both sides of FICA. There MIGHT be SERIOUS budget tightening as well. Are these dream solutions? IMO in a situation where we are finally faced with alternatives like 1) breaking our contract law, tanking our currency, tanking bond and equity markets, and cutting off most future borrowing or 2) doing the obvious, raising taxes, we will ultimately choose to do the smarter thing and not implode our nation in a paroxism of frustration for a short term "solution,"
Regards, Dick
PS. Paulson has credibility. Gundlach just appears on TV a lot because he will say attention getting outlier stuff that helps fill airtime.

 

[MichaelB]

Lowering expenses and raising taxes is the remedy we have preached to others for the past 3/4 century. It’s a bitter medicine and I doubt out willingness to taste it.

I suspect we will try to reduce the debt carry load by extending maturities well into the future at rates favored by the Fed and then let them lose their real value to inflation. The overall impact is similar to a tax increase, but distributed much differently.

 

[Montecfo]

Well, my post was certainly not intended as some sort of personal challenge to you, pretty clearly because 1) it was not a response to your post, and 2) it amplifies one of your points.

How will we address debt growth? Easy: we will raise taxes on corporations and individuals. Tariffs were a start at increasing corporate taxes, but we will need to increase corporate taxes significantly as well as those on the growing 100+k indivudual cohort, including both sides of FICA. There MIGHT be SERIOUS budget tightening as well. Are these dream solutions? IMO in a situation where we are finally faced with alternatives like 1) breaking our contract law, tanking our currency, tanking bond and equity markets, and cutting off most future borrowing or 2) doing the obvious, raising taxes, we will ultimately choose to do the smarter thing and not implode our nation in a paroxism of frustration for a short term "solution,"
Regards, Dick
PS. Paulson has credibility. Gundlach just appears on TV a lot because he will say attention getting outlier stuff that helps fill airtime.

Easy? well, it seems anything but. And if it is truly easy we would be doing it now don't you think?

But yes most of us probably hope Congress addresses this BEFORE we have a debt crisis, when an incremental approach like the one I described is still possible. That seems unlikely.

I do not know what will happen. But I am unwilling to dismiss possibilities since in fact no one knows. And Paulson's statement that we need to prepare a "break glass emergency plan" suggests he agrees there is a good chance things will end dramatically, in crisis. And if we hit that point the currency will already have been damaged along with equity and bond markets as well as our credit.