THIRD QUARTER PRELIMINARY ECONOMIC DATA: THE USA vs CHINA:
October 21, 2023 5 Comments
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October 21, 2023 5 Comments
THEPLANNINGMOTIVE.COM 
“despite the FED re-appearing as a buyer”.
According to Fed H.1.4 table 5, Fed’s total assets on Oct 18 was $7,933,162B down $18,892B from Oct 11 and down $810,760B from Oct 19, 2022. It’s been steadily declining since the March bank panic spike. About $1T lower than the peak on April 2022. https://www.federalreserve.gov/Releases/H41/Current/
“now faces a possible government shutdown”. Possible but not probable. This shutdown charade has been going on forever.
“If the demand for government debt falters in the face of a deluge of issuance, interest rates could continue to spike even if the FOMC reduces the FED rate. At that point the FED would have no choice but to re-embark on a programme of Quantitative Easing”.
Yes in that scenario the FED will reduce the rate but will not resume QE. For the FED something major has broken and that’s price stability. CPI jumped by 0.40% in September from August, despite the still ongoing ridiculous monthly adjustments to the health insurance CPI. With the October CPI, to be released next month, the health insurance CPI will flip, adding further upward momentum to the CPI readings due to the health care adjustment. Resumption of QE in the face of spiking CPI is highly unlikely.
“the Federal Reserve’s profits have turned into losses exceeding $110 billion by October 2023. Now it seems the Treasury may have to bail out the FED”.
The FED will hold those bonds to maturity, when it will get face value, and there won’t be an actual loss. And the Fed can never run out of money or become insolvent because it can create money.
Thank you.
Its true that the FED has been a net seller of bonds and MBAs but that does not rule out the fact that on occasion it has bought in bonds as well. The 10-year as you no doubt know is the key bond rate as it sets the rate for a host of financial instruments including mortgages. Thus if FED intends to influence interest rates it will focus on the 10-year yield. I observe that the 10-year has once again ticked up above 5% to begin the week. Here is today’s article from CNBC on the so called bond vigilantes. https://www.cnbc.com/2023/10/23/the-bond-vigilante-is-coming-back-ubs-strategist-says.html
What is different about this repeat performance about financing the federal government is that the lower house is immobilized by the in-fighting going on in the Republican party which remains leaderless. Should the bond crisis deepen this week which looks likely this will strengthen and harden the hand of right in the Party for deep cuts including those being given to international puppets.
Yes, inflation is sticky and with droughts breaking out all over the southern hemisphere it will become even stickier, to which we may add the Mississippi river is also getting muddier as water level falls. However full blown financial crises generally results in deflation and a run on the dollar. At this point cutting rates will not be enough, only QE can reflate the banks and bolster the dollar. Let’s keep an open mind. I think the answer will occur within a few months.
The bond market up until recently was in denial. The so called bond vigilantes were the delusional Fed pivot-mongers praying for a recession demanding resumption of QE. I don’t think they’re the ones who have done bulk of the selling. It’s been a tsunami of bond issuances by the Treasury in tandem with the Fed’s QT unloading bonds.
Today a huge demand appeared after the 10-year Treasury went over 5% while at the same time S&P closed lower. Selling stocks and moving the proceeds to a safe haven that is the 10-year Treasury. This divergence is a sign that financial markets are in trouble. A credit event of some sort. Have you noticed Bitcoin’s recent sharp move higher?
I have, it’s topped 34,000. I have also seen a recent report that defaults on car loans is at record highs. As most workers are totally dependent on their cars to commute and for work, which means they have to prioritise their cars, this is significant. We will know more when the smaller banks have finished reporting.
Prime-rated auto loans account for 86% of auto-loan balances outstanding. Fitch reported that the 60+ days delinquency rate of prime auto loans in September was 0.27% so prime-rated are just fine.
About 14% of total outstanding auto-loan balances are subprime. The 60+ days delinquency rate of the subprime that Fitch tracks rose to 6.1% in September past the prior record of 6.0% in October 1996 and of 5.9% in August 2019.