I am looking very closely at my portfolio of private loans into Southern California warehousing and transport. They are all ending over the next 18 months, all are paying with no problem, but I will not repeat until international trade looks, uhmmm, stable again.
My main investments are immune to the orange plagues, either being non-USA Real Estate and assorted cash funds, Mexican funds, or in USA oil and gas that is still sitting obscenely pretty.
Does not mean I am not feeling sick and a little dizzy…..
Actually the other way… due to ongoing inflation, and deficit, the interest rates rise, and that triggers bond prices decline, because of raising interest rates, thus collaterals value declining, or completely collapsing. In a circular fashion this will raise overnight lending rates and other lending rates. This is what a crack in the bond market means…
We had seen 2 or 3 episodes of this in the last 2 years. This is the reason, Fed reduced treasury runoff (i.e., it keeps reinvesting maturing treasury bonds) to maintain liquidity. Recently during SVB crisis, Fed opened BTFP, in addition to regular discount windows, because of collapsing collaterals. BTFP allowed the banks to borrow at face value, not mark-to-market.
It is liquidity that is biggest risk in bond market, even higher than interest rates. You can keep the rates artificially low, but if the market participants are scarred or think the rates are too low for the potential default, then they will not lend, and exacerbating liquidity crisis.
Typically banks are 10x leveraged, i.e., for every $1 of capital they carry 10x liabilities. This is the principle risk. Just to give an example, In the repo market treasuries are slightly over-collateralized, i.e 2% ~ 3%. While that may sound not big, remember repo market is $4~$5 trillion per day. So a very small disruption can cause much bigger impact, losses and wipe out few institutions.
This is the reason, when the risks are high, institutions don’t want to lend, because you won’t know who is swimming naked, or rather you don’t want to find out. So forgo earning that 1/10 th of 1 basis point to preserve the capital.
2008 should have demonstrated to everyone’s satisfaction that the US government will protect the money interests. Everything and everyone in the US is expendable in the service of the money interests. As the “starve the beaster” said to the Concord Coalition panelist, probably 20 years ago, the intent is to use a financial crisis, to cut off all social spending.
This risks hyperinflation. This can be much worse than 2008. Much more money is on the line. We are going into a Great Depression.
Induced Great Depression.
All we have to do and all we will do is increase corporate taxes at the end of the day. Because corporate taxes are not collected, since reinvestment takes off, top bracket income taxes will need to rise. Now with defaults the revenue will be needed from a higher income tax on the top bracket.
No rich people will not leave. Leaving is just an easy line of it to get their way. Worthless garbage throwaway line.
I’ve no doubt that the USA will always repay its debts. It can just keep printing endless money to do it. The real fear is that the dollar will be practically worthless. Read this book to understand how this happens:
Not as long as the money is kept away from the Proles. That has been demonstrated too: have the banks deposit the cash that was thrown at them, with the Fed. Just to make it look good, cut off all assistance programs. If that isn’t enough, start carving out of SS and Medicare (see previous posts about “Plan Steve”). After all, Proles are nothing but expendable meat*. Back in the “good old days”, when the annual Federal deficit was only $1T/year, as an exercise, I made a Trillion of cuts, without touching SS or Medicare.
Steve
*a couple weeks ago, a Senator dared to have a “town hall”, and faced questions about the consequences of cuts to Medicaid, culminating in one comment that “people will die”. The Senator replied with words to the effect “everyone dies”. My takeaway is that the Senator doesn’t care if a Prole dies of a treatable condition now, or dies of an untreatable condition 40 years from now. The end result for the Prole is the same: dead. But, the situation that has the Prole die now, of a treatable condition, also hands the “JCs” another big tax cut, a tradeoff the Senator is fine with, because Proles are expendable meat.
Ask Liz Truss maybe she can help. She was Prime Minister of Great Britain for, uh, 49 days.
Liz Truss's premiership was largely defined by the turmoil she caused in the UK bond market after her "mini-budget" was announced. The proposed tax cuts, which were to be financed through borrowing, led to a sharp spike in bond yields and a sell-off of British government bonds (gilts). This forced the Bank of England to intervene, buying up bonds to try and stabilize the market.
Or to jump to “consequences:”
Consequences:
The crisis ultimately led to the resignation of Truss’s chancellor, Kwasi Kwarteng, and a reversal of many of the mini-budget’s policies. The event highlighted the importance of fiscal discipline and the power of the bond market to influence government policy.
Lessons Learned:
The “Truss moment” served as a cautionary tale for other governments, demonstrating that bond markets can be a powerful force and that unsustainable fiscal policies can lead to market turmoil.