EJ Twitter thread on yield curve inversion

[GRG55]

Re: EJ Twitter thread on yield curve inversion

Yes. It tells us there are accelerating capital inflows into the US$ and US$ denominated assets.
I don't really think it tells us anything more than that with any confidence at this juncture.

[jk]

Re: EJ Twitter thread on yield curve inversion

years ago marc faber said the dollar would be the last fiat standing [yen 2nd to last], before it too succumbed to a wave of printing.

for those interested in tracking this i recommend the twitter feeds of @santiagoaufund and @lukegromen.

the former focuses on the rising dollar, measured against other currencies, usually via dxy. he predicts strength in the dollar continuing and accelerating.

the latter focuses on the need to print in order to finance ever rising u.s. deficits. foreign cb's stopped their net purchases of treasury paper in '14, and foreign private buyers cut back sharply when the cost of currency hedging rose sharply.

this leaves domestic private buyers and there aren't nearly enough. the only way to keep rates from rising and killing the economy altogether is for printing: helicopter money, resumed qe-4-evah, etc. gromen implies [but doesn't quite state explicitly] that he thinks of dollar devaluation in terms of purchasing power.

thus there is no intrinsic contradiction between their positions.
https://twitter.com/LukeGromen
https://twitter.com/SantiagoAuFund

[i may have already posted this before, perhaps even in this thread. i can't keep track, so if i did please forgive me and take this as an expression of my enthusiasm for these analyses.]

[Chomsky]

Re: EJ Twitter thread on yield curve inversion

Btw EJ added some more to his thread.

https://twitter.com/ejanszen/status/1161833824768221185

[jk]

Re: EJ Twitter thread on yield curve inversion

why there are low and negative rates: jeff snider
https://www.alhambrapartners.com/201...gative-yields/

[Mega]

Re: EJ Twitter thread on yield curve inversion

Sadly not easy for a Layman like myself to follow.............the question that BURNS with in me is this:-

Are interest rates ever going to return to normal or like the Gold standard a thing of the past?
Mike

[jk]

Re: EJ Twitter thread on yield curve inversion

Sadly not easy for a Layman like myself to follow.............the question that BURNS with in me is this:-

Are interest rates ever going to return to normal or like the Gold standard a thing of the past?
Mike

i've been thinking about the same question. the example of japan shows that ultralow rates can go on for decades. i think the difference is how much money gets printed or, alternately, whether the economy just drags or undergoes a sudden stop. if the latter you could get an inflationary blowoff with high nominal [but probably not real] rates. if the former, you have japanification.

[GRG55]

Re: EJ Twitter thread on yield curve inversion

Sadly not easy for a Layman like myself to follow.............the question that BURNS with in me is this:-

Are interest rates ever going to return to normal or like the Gold standard a thing of the past?
Mike

i've been thinking about the same question. the example of japan shows that ultralow rates can go on for decades. i think the difference is how much money gets printed or, alternately, whether the economy just drags or undergoes a sudden stop. if the latter you could get an inflationary blowoff with high nominal [but probably not real] rates. if the former, you have japanification.

I think its going to take a reset of the global monetary system before we "escape" from these ultra low managed interest rates. 1) Could that take a decade or three? 2) Will it actually be a high US$ (not a collapsing US$ as many predict) that precipitates the acute global financial stress that triggers/motivates a monetary reset?

The last monetary reset was when the British Pound gave way to the US$ after WWI. Below a chart of the NY Fed Discount Rate from 1919 to 1930. The "Roaring Twenties" was a period of persistently low interest rates and culminated in the overpriced financial markets that broke in 1929. Is history rhyming today? By Bretton Woods it was probably a "no brainer" the US$, backed by the US economy, was the only realistic option for a new post-WWII reserve currency system. I don't see anything that obvious as a replacement today. The IMF is steadily discrediting itself (look at the current mess in Argentina), so I wonder about the future of its SDRs. The Euro, at least in its present form, may not survive. I've never been much of a believer in the Chinese economy displacing the USA to lead the world. Unlike the US$ in the 1920s, which was the subject of capital inflows, today the Chinese have to maintain capital controls to stem the outflow, and now even Hong Kong is seeing accelerating outflows. But who knows, maybe an utterly totalitarian and abusive government is the future for all of mankind after all?

[jk]

Re: EJ Twitter thread on yield curve inversion

i think it has to be cheaper dollars so that the gov't can pay its off-balance sheet liabilities. it's that or default or radically cut entitlements, and i don't think those options are politically feasible. so everything will be paid, just with itty bitty dollars. if it's via mmt- i.e. just print- then debt service is not a drag and rates could rise. if it's qe 4-evah, then at least nominally debts will be serviced and rates kept low. i must say this is making my head spin.

[GRG55]

Re: EJ Twitter thread on yield curve inversion

i think it has to be cheaper dollars so that the gov't can pay its off-balance sheet liabilities. it's that or default or radically cut entitlements, and i don't think those options are politically feasible. so everything will be paid, just with itty bitty dollars. if it's via mmt- i.e. just print- then debt service is not a drag and rates could rise. if it's qe 4-evah, then at least nominally debts will be serviced and rates kept low. i must say this is making my head spin.

I wonder if we will be surprised by the rise of near-zero coupon century bonds as a funding source to address some of this?

For many years the US Treasury kept reducing duration as interest fell. This was particularly acute during the Clinton and Bush 2 administrations iirc. I think I saw an article headline a few days ago suggesting some US Treasury officials are now of the opposite frame of mind and considering century bonds. Austria and Germany are already there.

"Free money" for a 100 years could keep this game going longer than we might think. Just imagine having up to a full century to inflate your debt away.

[Mega]

Re: EJ Twitter thread on yield curve inversion

May you live in intresting times............

[dcarrigg]

Re: EJ Twitter thread on yield curve inversion

i think it has to be cheaper dollars so that the gov't can pay its off-balance sheet liabilities. it's that or default or radically cut entitlements, and i don't think those options are politically feasible. so everything will be paid, just with itty bitty dollars.

Why are those the only options?

Repeal the wage base, and SS is funded for a century. Actually install a sane healthcare system, and Medicaid and Medicare stop bleeding more combined per capita to cover 40% of people than other countries do to cover 100% of everyone. Set tax rates back to the Carter Era or undo the Trump corporate cuts or the W cuts, and there's some trillions in gravy on top, at least for a time. Close down tax havens, and Lord knows what comes crawling out from those rocks. Sell off federal lands, and you've got anywhere up to about $120T to play with. Tax carbon, add a VAT, or anything else imaginable, and you can raise more.

I simply can't understand why anyone would think that the choices are only default, inflation or radical cuts, as if Uncle Sam doesn't have 99 ways to raise revenue, if required. To me, this idea is totally emblematic of the unimaginativeness of the Reagan Era. The fall of America is somehow easier to imagine than a tax increase. You've got an entity that is a world empire with the a totally insane war machine legal taxing power and well over a hundred trillion in assets--Uncle Sam. Yet there's this simultaneous perception that he's weak, and ready to keel over at any moment over a few bills. It's truly weird to me, the strong-yet-weak idea. But it really does seem stuck in the collective consciousness.

[jk]

Re: EJ Twitter thread on yield curve inversion

Why are those the only options?

Repeal the wage base, and SS is funded for a century. Actually install a sane healthcare system, and Medicaid and Medicare stop bleeding more combined per capita to cover 40% of people than other countries do to cover 100% of everyone. Set tax rates back to the Carter Era or undo the Trump corporate cuts or the W cuts, and there's some trillions in gravy on top, at least for a time. Close down tax havens, and Lord knows what comes crawling out from those rocks. Sell off federal lands, and you've got anywhere up to about $120T to play with. Tax carbon, add a VAT, or anything else imaginable, and you can raise more.

I simply can't understand why anyone would think that the choices are only default, inflation or radical cuts, as if Uncle Sam doesn't have 99 ways to raise revenue, if required. To me, this idea is totally emblematic of the unimaginativeness of the Reagan Era. The fall of America is somehow easier to imagine than a tax increase. You've got an entity that is a world empire with the a totally insane war machine legal taxing power and well over a hundred trillion in assets--Uncle Sam. Yet there's this simultaneous perception that he's weak, and ready to keel over at any moment over a few bills. It's truly weird to me, the strong-yet-weak idea. But it really does seem stuck in the collective consciousness.

you're absolutely right, dc. perhaps i'm too much of a pessimist to see those options, but i am indeed very much a pessimist re our political system. i think things will have to get much worse before such policies become possible.

[kbird]

Re: EJ Twitter thread on yield curve inversion

i think things will have to get much worse before such policies become possible.

After hearing so much about it, I finally read "The Fourth Turning" during the past few weeks. It doesn't disappoint. Having published the book in 1997, the authors predicted that the coming fourth turning crisis will begin in the mid-2000s, reach a peak around the year 2020, and come to some sort of a resolution by 2026. Without having any idea what the heck is going to happen or how it will turn out, that timing sounds about right.

[dcarrigg]

Re: EJ Twitter thread on yield curve inversion

just seems to me that between ~1940 and 1980, the reagan era itself was pretty much just as unthinkable. look at old council of economic advisors projections from the 60s and 70s. current levels of inequality were simply unthinkable. orders of magnitude beyond the upper bound of their 30 and 50 year projections. nobody thought the top rate would be slashed from 70% to 28% in one administration. but it was. and fast. just as fast as it went from 28% to 93% in the 30s. i've been saying, i think we're at least nearing the end of the old reagan era. this last tax cut was massive and did no good for almost nobody, and they had to rob from peter (the professional class on the coasts) to pay paul (corporate execs and inheritors). this is the first time that tax cuts have been so unpopular. polling around -14pts. h.w. bush's slight tax increase polled only at -11pts. and w. bush's tax cuts polled at +12pts. cutting taxes used to be a surefire winner for the last 40+ years. not so much now. and that's just rational, right? i mean, obviously there's a point beyond which further cuts might do damage, just like there's a point beyond which further hikes might. we've cut federal taxes to the bone over the past 40 years. no matter how you slice it, federal receipts as a % of gdp were lower in 2004 than any year since 1951, and in 2011 they dipped down even lower. the next recession is likely to take us to pre wwii revenue levels, lowest since 1942. already corporate tax revenue as a share of gdp hasn't been this low since 1936. payroll tax receipts are the lowest they've been (outside of the recession/stimulus cuts) since 1980, even with such low unemployment. income tax receipts are higher than in recent years, but are still nowhere near (~15% lower than) where they were at the end of the 90s in the run up to the dot com bubble.

i'm not sure how many private backyard hobby space programs people will be willing to collectively support on uncle sam's dime. i suppose maybe we'll all be sitting around in 2030 watching the kardashians live from mars and fretting about heavy inflation as corporate taxes are abolished, grandma gets a coupon to dollar general instead of a social security check, and ambulance drivers slice off your finger and keep your wedding ring as payment for a lift to saint god's memorial hospital. can't rule it out. after all, this was a joke just 10, 15 years ago...and now it's real...(start at 2m 40s)

[thriftyandboringinohio]

Re: EJ Twitter thread on yield curve inversion

After hearing so much about it, I finally read "The Fourth Turning" during the past few weeks. It doesn't disappoint. Having published the book in 1997, the authors predicted that the coming fourth turning crisis will begin in the mid-2000s, reach a peak around the year 2020, and come to some sort of a resolution by 2026. Without having any idea what the heck is going to happen or how it will turn out, that timing sounds about right.

Thanks kbird. I read that book twice. I gave it a second chance about a year after the first read.
It's a pretty beguiling hypothesis and it's a great read, but in the end I just can't accept it as true. I don't think the population cohorts of the four named generation types have clean sharp boundaries.
And at the bottom of it all the authors pick one side of the eternal debate between free will and fate. The authors cast their lot with predetermined fate.
Of course a hypothesis that is only partly true can still have some useful predictive power.
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