Household Debt Growth YoY Now Equals Federal Public Debt Growth (Thanks To Debt Ceiling On Feds)

Yes, the US public debt is temporarily frozen at the statutory debt limit (with the exception of fiscal shenanigan with public debt held by investors versus intragovernmental lending).  You can see the rapid expansion of household debt between 2000 and 2007 compared with after 2007.

But it was the Federal government that greatly expanded debt after 2007, not households.

The Year-over-year increase in Public debt can be seen spiking in 2009 then slowing while consumer debt bottomed out in 2009 but has been growing ever since such the the YoY growth rate in Public debt and consumer debt are about the same (3% YoY for Public debt and 3.44% YoY for household debt).


Despite the staggering monetary stimulus from The Federal Reserve (created in 1913 by The Federal Reserve Act and signed into law by President Woodrow Wilson), household debt has bee relatively slow to grow compared to previous decades while Public debt has benefitted by The Fed’s monetary rate repression.

And the monetary effect seems to have stalled for commercial and industrial lending (2.6% YoY) and real estate lending (4.64% YoY).

Janet Yellen looks like a Keynesian Krusader in this photo.


US Treasury 30Y-5Y Slope Falls To Under 100 (Lowest Since Dec 2007)

The US Treasury yield curve (30Y-5Y) slope has flattened to the lowest level since December 2007, before The Great Recession.

The US Treasury 10Y-2Y curve slope (orange line) is near the lowest level since December 2007.

It looks like The Fed’s massive stimulus has finally worn off for the Treasury curve.

Fed Vice Chair Stanley Fischer spoke this morning.

NY Fed’s Dudley: “Remain Calm!! All Is Well! Flattening Yield Curve Is NOT A Bad Sign For The Economy!!”

The New York Fed’s President and CEO William (Bill) Dudley just uttered one of the silliest statements of all time at a business forum in Plattsburgh, New York.

(Bloomberg) — Federal Reserve Bank of New York President William Dudley sounded a positive note on the U.S. economy, saying the central bank wanted to tighten monetary policy “very judiciously” to avoid derailing the expansion that began in mid-2009.

“I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go,” Dudley said Monday in Plattsburgh, New York.

Yields on U.S. Treasuries rose and the dollar advanced after Dudley’s comments. 

Dudley also said that a flattening (Treasury) yield curve is not a bad sign for the economy.

Well, that was a silly thing to say because since the 1970s, the US Treasury curve has always flattened before a recession.

True, we live in a global economy where numerous nations continue to struggle with low growth. And global Central Banks continue to keep their benchmark rates near zero.

Or is Dudley doing his equivalent of “Remain calm! All is well!” from Animal House?

A Hawk In The Crowd: Fed Bucks Central Bank Trends By Raising Rates 4 Times Since Dec ’15 While Others Lower Or Keep Steady

With the latest hike in their target interest rate, The Fed Funds Target Rate, Yellen and the FOMC have now completed 4 rate hikes since December 2015 (although my friend Chris Whalen claims there will be no more).

One reason why Chris Whalen may be right is that The Fed is bucking the headwinds of no rate changes by other Central Banks.

Yes, I left off the Bank of England because I ran out of room. But it is the same for the BofE — no change. But the BoE has cut rates once while The Fed has increased rates 4 times.

To highlight the impact of The Fed’s 4 rate increases, I compare the US Treasury yield curve (actives) with the Japanese sovereign curve for today versus December 1, 2o15 before their first rate hike.  Notice that the US Treasury curve has been flattened for 10 year maturities and lower. The converse is true for the Japanese sovereign curve: their curve is lower, particularly in the mid-to-long end of the sovereign curve.  But still flattening. The bright lines are for today, the darker lines are for December 1, 2015.

The UK sovereign curve, like the Japan sovereign curve, is flatter today than on December 1, 2015.  But most of its flattening occurs at the mid-to-long end of their curve.

I certainly hope “Lonesome Yellen” doesn’t speak like this when off camera.

Yes, Yellen and The Fed are “A Hawk in The Crowd.” Amongst pigeons. Or a pigeon among hawks.


Less Cowbell! Fed Raises Target Rate To 1.25%, 10Y-2Y Curve Slope Falls Below 80, Fed Announces Balance Sheet Winddown

As expected, Fed Chair Janet Yellen and the FOMC raised The Fed Funds Target rate (upper bound) t0 1.25% from 1%, a 25 basis point increase.

The Fed has been following a “dovish” strategy from September 2007 until they started raising The Fed Funds Target rate in December 2015. That is, The Fed went from “more cowbell” to “less cowbell.”

This has helped flatten the 10Y-2Y yield curve slope below 80.

Yes, inflation is losing steam yetThe FOMC still raised the rate.

The updated Fed dot plot still shows more rate increases to come.

Yellen announced the plan to unwind The Fed’s massive balance sheet:

“Initially, these caps will be set at relatively low levels, $6 billion per month for treasuries and $4 billion per month for agencies. So any proceeds exceeding those amounts would be reinvested. These caps will gradually rise over the course of a year to maximums of $30 billion per month for treasuries and $20 billion per month for agency securities, and will remain in place through the normalization process.”

Now look at the US Dollar today. It plunged when the lousy economic data was released in the morning, then popped back up after The Fed’s announcement of a rate increase and balance sheet shrink strategy.

Is this a photo from the film “The Eagle,” the film about a lost Roman eagle standard from the Ninth Legion’s supposed disappearance in Britain? Or the Imperial Fed Chair?


Pre Fed Meeting Treasury 10Y Yield Declines 10 BPS, 10Y-2Y Slope Falls Below 2016 Election Levels

The Federal Reserve Open Market Committee (FOMC) is meeting today and their verdict will be revealed at 2pm EST. But on the poor retail sales numbers and lack of inflation, the US Treasury 10 year yield fell around 10 basis points (BPS).

The US Treasury 10Y-2Y yield curve slope further slipped even further below 2016 Election Day levels.

Mortgage rates should follow the 10 year Treasury yield lower.

US CPI Urban Consumers Less Food & Energy YoY Falls To 1.7% As Real Weekly Wages YoY Rise (Retail Sales Fall By Most Since Jan 2016)

In a prelude to the almost certain rate hike by The Federal Reserve this afternoon, the US CPI Urban Consumers Less Food & Energy YoY fell to 1.7%.

At least the downward trend in real weekly wages YoY was halted.

US CPI Urban Consumers Owners Equivalent Rent of Residences YoY dropped to 3.3%. Too bad US Avg Hourly Earnings for Private NFP Prod&NonSup In Nom$ YoY is growing at 2.4%.

And then we have retail sales falling by the most since January 2016.

So,  The Federal Reserve has not been able to generate any inflation to speak of. This is not really surprising given The Fed’s overly cautious approach to interest rate management.