Taxes, the Deficit/Debt, and the Fiscal Cliff

[gearhog]

Translation: Banks are in trouble, the economy is in trouble, and Trump wants to artificially prop up the economy long enough to get reelected. He's attempting to make it sound as if it's for exports, but it's really to save the financial system. He's concerned.

If the Fed prints money to buy bad loans or other poor performing securities to rescue banks, it's called QE. If you or I print money to buy anything, it's called counterfeiting.

The Fed is dumping a fuck-ton of money into the economy and with low/negative interest rates, it is forcing banks to lend it essentially free instead of parking it somewhere. Big money is currently hoarding cash/liquid assets because they currently think it's better to take a hit on inflation than loan defaults and/or big market losses coming down the pike. That could be why there is no money in the repo (repurchase agreement) market, but I'm no expert. It's akin to a bank walking into a pawn shop and saying they need $10,000 to give out in loans that they will repay tomorrow with interest, and using a brand new corvette as collateral. They pawn shop (lending bank) says, "That's a fantastic deal, but we have no money to give you." Things are in danger of coming to halt until the Fed shows up at the pawn shop and hands over a warm stack of freshly printed $100 bills just to keep all interested parties' businesses from tanking.

This new money will take a minute to circulate through the financial system, and when it starts hitting the pockets of the average wage-earner, the price of everything will soar. The purchasing power of your nest egg in the bank falls dramatically. The average person will have less discretionary spending because they'll be spending earnings on the ballooning prices of milk, bread, utilities, healthcare, car payments, student loan payments, credit card payments, and mortgages. When money gets tight and cards are maxed, less consumer goods are purchased and loan payments slow. Borrowers default and it's 2007-8 again, but with multiple bubbles. Your savings and cash accounts are devalued, and your retirement/401K is crushed. Tax revenue shrinks while the Federal Government continues to spend $1 Trillion more (and growing) per year than it receives.

The only question is: "How long?"

 

 

Edited December 18, 2019 by torqued

[LNGH]

40 minutes ago, torqued said:

The only question is: "How long

3-5 years. 

here's a tin-foil hat idea for you: Trump props up the economy long enough to get re-elected, then intentionally let's it crash a year into his second term. He then gets to turn around and blame the dems since they held congress and therefore the purse strings, tell everyone that only he can save us and lead us out with his business acumen (never mind that government is not a business and is designed to operate at a loss, albeit ideally not $1 trillion+ a year) and sets himself up for term 3. Boom, term limits gone, political opponent vilified, and messiah status established.

Not a real prediction, but a fun idea for a book, yeah? Real note: this is how dictatorships form all over the world, so the only part I'm pulling out of my ass is it happening in America. Not realistic for us but its not far fetched for a lot of places, especially third world countries that got a taste of the developed world and lost it.

[N730]

2 hours ago, Kiloalpha said:

Talk to blue collar or middle class folks and they’ll tell you that things are good, but something just feels odd about the growth. So, they’re not expanding as much, and they’re saving more.

Except a lot of farmers. Many of them are directly feeling the ramifications of our current trade policies. But then the government bails them out of a problem they created with billions of dollars they don't have and expect to be thanked. All the way, the government is ignoring the fact that some of the markets farmers have lost will not be coming back.

At least the auto industry repaid their bailout, most with interest. The emergency farm subsidies are money that shouldn't have been necessary to begin with.

[Kiloalpha]

51 minutes ago, N730 said:

Except a lot of farmers. Many of them are directly feeling the ramifications of our current trade policies. But then the government bails them out of a problem they created with billions of dollars they don't have and expect to be thanked. All the way, the government is ignoring the fact that some of the markets farmers have lost will not be coming back.

At least the auto industry repaid their bailout, most with interest. The emergency farm subsidies are money that shouldn't have been necessary to begin with.

This is a very good point. However, the food industry has been living in a sheltered economy for a long time, with illegal immigrants working as insanely cheap labor, and farm act subsidies keeping the market costs for certain crops over-competitive internationally.

Corn in particular, ever since GWB’s wonderful ethanol idea, has been the definition of a boondoggle. That ear of corn in Walmart should be at least triple the price, but due to insane subsidies and cheap labor it remains that low. Not to even get started on how the blended fuels are worse for engines...

Ted Cruz, even with his dad having assassinated JFK, was right when he stood in Iowa and told the corn farmers to their faces that those subsidies need to end.

[Negatory]

I hate this convo.  There is seemingly no move to win.  And there isn't even a move to not play.

 

At least we will always have our cush gubment jerbs...  Right?

Edited December 19, 2019 by brawnie

[BFM this]

22 hours ago, torqued said:

This new money will take a minute to circulate through the financial system, and when it starts hitting the pockets of the average wage-earner, the price of everything will soar. The purchasing power of your nest egg in the bank falls dramatically. The average person will have less discretionary spending because they'll be spending earnings on the ballooning prices of milk, bread, utilities, healthcare, car payments, student loan payments, credit card payments, and mortgages. When money gets tight and cards are maxed, less consumer goods are purchased and loan payments slow. Borrowers default and it's 2007-8 again, but with multiple bubbles. Your savings and cash accounts are devalued, and your retirement/401K is crushed. Tax revenue shrinks while the Federal Government continues to spend $1 Trillion more (and growing) per year than it receives.

One of the toughest concepts for the average joe to wrap their brain around is that inflation isn't just something that happens naturally, as we've been conditioned to believe, and at the end of the day, it is really a back-door tax.

[herkbier]

So what’s a potential defense here? Short financials and reits? Buy gold and bitcoin? 

[gearhog]

36 minutes ago, herkbier said:

So what’s a potential defense here? Short financials and reits? Buy gold and bitcoin? 

I wish I knew the answer. I have a conservative amount of physical precious metals (about 5-10%). If nothing else, it feels good to have some physical assets that will always retain value under your own roof. Gold backed crypto-currency sounds promising, but I haven't done the homework on that yet. I've always been a passive investor and shorting seems like a lot of work, so I haven't gone that route.

30 year mortgages on investment rental properties is another idea. You can raise the rent to keep pace with inflation, but your locked in principle and low interest rate may hold value better than market investments. I've pulled the majority of my non-401K market investments out to go with this strategy. Only time will tell if that's the right move.

Edited December 20, 2019 by torqued

[17D_guy]

1 hour ago, torqued said:

30 year mortgages on investment rental properties is another idea. You can raise the rent to keep pace with inflation, but your locked in principle and low interest rate may hold value better than market investments.

I keep thinking about this.  But when this shit tanks again...who's going to pay that rent?  My brother was almost 30 living in a house w/4 other dudes after the Great Recession.  Not by choice.

[gearhog]

I was texting with some friends who were happy that our TSP was doing well this past year.

Here's a few articles I've found the past few days:

Over 1700 announced of possible 12,000 expected major retail stores closing in 2020
https://www.businessinsider.com/stores-closing-in-2020-list-2020-1

2019 Auto Sales lowest in 5 years
https://www.pymnts.com/news/retail/2020/us-2019-auto-sales-were-lowest-in-five-years/

Auto Sales supported by sub-prime lending while delinquencies rise
https://seekingalpha.com/article/4315102-auto-sector-will-continue-to-decline-2020s

Auto Dealers falsifying buyer’s income on car-loan applications
https://www.wsj.com/articles/an-809-car-payment-a-660-income-how-dealers-make-the-math-work-11576924201?mod=searchresults&page=1&pos=3

Baltic Dry Index largest drop since 2008
https://capital.com/baltic-dry-suffers-largest-drop-since-2008

ISM Manufacturing Index 10 year low
https://finance.yahoo.com/news/etfs-suffer-ism-index-drops-210709628.html

US Rail Traffic down %5.1% since last year
https://www.freightwaves.com/news/us-rail-traffic-starts-off-new-year-in-a-slump

Nine States are experiencing a contracting economy
https://www.philadelphiafed.org/research-and-data/regional-economy/indexes/leading

So why is the Market going up?

Lots of reasons, but here is one biggie: The Federal Reserve bank has been pumping (printing) hundreds of billions into the repo market since September as posted about earlier. More announced just a few days ago. The four biggest primary lenders (JP Morgan, Citi, B of A, and Wells Fargo) need that cash to keep hedge funds afloat.

These massive hedge funds are borrowing money to buy equities, which drives the market up. Hedge fund purchases and corporate buybacks are masking the real business values.  If hedge funds have trouble making these loan payments, they stop buying. If they don’t keep buying, stock prices stagnate. If they liquidate to make payments, prices decline.

In short, the US government is printing money for the purpose of allowing banks and hedge funds to gamble borrowed money in a rigged game, and you are assuming the risk.

The Market is following the increasing Fed Balance Sheet and little else. We can’t print money indefinitely while the government runs a $1 Trillion dollar per year deficit. So, when we stop printing, no repo market funds, hedge funds liquidate to pay bills, stocks decline, a panic and rush for the exit ensues. Wall street will be the first to the exit and they’ll be taking the bulk of the cash with them. Passive investors like you and I will be at the back of the line. Don’t fall in love with your TSP gains and I feel bad for anyone signed up with BRS.

Keep an eye on this link:

https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements/repurchase-agreement-operational-details#monthly-summary

 

Edited January 10, 2020 by torqued

[MilitaryToFinance]

In case there is any question about whether or not the whole system is fucking rigged. And yes I'm just bitter that my fund doesn't do anything that would get us free money from the Fed.

"One potential solution is to lend cash directly to smaller banks, securities dealers and hedge funds"

https://www.wsj.com/articles/hedge-funds-could-make-one-potential-fed-repo-market-fix-hard-to-stomach-11578997801?reflink=e2twmkts

Edited January 17, 2020 by MilitaryToFinance

[gearhog]

On 1/10/2020 at 7:14 AM, torqued said:

The Market is following the increasing Fed Balance Sheet and little else. We can’t print money indefinitely while the government runs a $1 Trillion dollar per year deficit. So, when we stop printing, no repo market funds, hedge funds liquidate to pay bills, stocks decline, a panic and rush for the exit ensues. Wall street will be the first to the exit and they’ll be taking the bulk of the cash with them. Passive investors like you and I will be at the back of the line. Don’t fall in love with your TSP gains and I feel bad for anyone signed up with BRS.

Keep an eye on this link:

https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements/repurchase-agreement-operational-details#monthly-summary

 

Well, we're finally off the cliff and in freefall. Watch the market get shut down today. Remember, all of this was going to happen with or without the virus. The virus only moved up the timeline.

Check that link above and compare the numbers today with the numbers on 10 Jan.

We're collapsing.

 

Edited March 16, 2020 by torqued

[M2]

1 hour ago, torqued said:

Well, we're finally off the cliff and in freefall. Watch the market get shut down today. Remember, all of this was going to happen with or without the virus. The virus only moved up the timeline.

Check that link above and compare the numbers today with the numbers on 10 Jan.

We're collapsing.

Easy sunshine!  Breathe.



This ain't our first rodeo!

[brickhistory]

2 hours ago, M2 said:

Easy sunshine!  Breathe.



This ain't our first rodeo!

 Houston rodeo cancelled:  https://abc13.com/6003475/

 

Just sayin'...

 

PANIC!!!  Everyone sell now.  Sell, sell, sell.

 

 

 

 

 

"Hello, stockbroker?  I'd like to place some buy orders..."

Edited March 16, 2020 by brickhistory

[gearhog]

2 hours ago, M2 said:

Easy sunshine!  Breathe.



This ain't our first rodeo!

LOL. Sorry, this is my first global financial collapse, so I find it pretty fascinating.

As someone who survived the Great Depression, maybe you could give us young guys a few pointers.

I kid, I kid!

 

[gearhog]

1 minute ago, brickhistory said:

https://abc13.com/6003475/

 

Just sayin'...

 

PANIC!!!  Everyone sell now.  Sell, sell, sell.

 

 

 

 

 

"Hello, stockbroker?  I'd like to place some buy orders..."

I'm going back all in at Dow 10,000.

[GrndPndr]

59 minutes ago, brickhistory said:

 Houston rodeo cancelled:  https://abc13.com/6003475/

Just sayin'...

PANIC!!!  Everyone sell now.  Sell, sell, sell.

Please do, because I will be there to Buy, buy, buy.

Another axiom to use today...

What goes down, must go up (stocks), (Oh, and does not necessarily apply to your airframe, I'm told it's all energy management)

 

[HossHarris]

And eggs. 

[HeloDude]

Soooo…here we are again?  Kind of?  Maybe?

Any guesses on what’s going to happen in Congress over the next few days to several months?  My bet is that the debt ceiling will of course be raised—the only interesting question is by what means?  Will the GOP cave and vote to raise it and if they do, will they get something they want out of doing so?  Or will the Senate Dems need to change the Senate rules to allow the debt to be raised on a simple majority vote?

As for avoiding a government shutdown, I’m betting that both houses pass a short term CR while the Dems try to find a way to get their $1.2T infrastructure bill and/or $3.5T bill passed.  But unless Manchin and Sinema cave, the AOC types don’t seem to want to budge.  
 

Pass the popcorn!

[VMFA187]

Thank God for Manchin. 

[HeloDude]

7.9% inflation and the House (with a majority of Republicans in favor) just passed a $1.5 trillion spending bill for just 6 or so months of federal spending.  But yeah…it’s all about Russia/Ukraine, or something. 
 

Clearly things need to be a lot more painful here in the US before enough people agree that we need to stop the bleeding/adjust course.

[HeloDude]

Predictions with the debt limit fight?

[Swizzle]

1 hour ago, HeloDude said:

Predictions with the debt limit fight?

Last minute hasty decision wrought with taxpayer inefficient pork for special interests.

[HossHarris]

1 hour ago, Swizzle said:

Last minute hasty decision wrought with taxpayer inefficient pork for special interests.

So standard then?

[lloyd christmas]

Biden said he has done his part.  He doesn’t think he deserves any blame should the US default.  So there’s that.