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The Fed’s Tholian Web

IF one is a geek like myself, the idea of using a Star Trek analogy to the Burnsian like Federal Reserve under the management of one Jay Powell might seem offensive.

So be it.

However it does reflect the dilemma the Federal Reserve has created for itself in concert with the American government and the crisis which is washing up on our shores.

Instead of investigating what was causing the problem and seeking reasonable solutions, just like the bullheaded but lovable Captain Kirk (ok, Powell, not so much), the Fed charged in thinking it was 1978 and their solution would be the only one that would work. Fed Chair Jay Powell was firmly convinced he was going to become Paul Volcker 2.0 and the worlds would adore him like the guy who turned on the open sign at a local doughnut shop at 5 a.m.

Then he said this:

And yet he doesn’t buy his own gas, health insurance, homeowner’s insurance, auto insurance, groceries, etc. so how would he know about inflation other than a series of data points produced by bureaucrats who’s sole purpose is to remain at their cushy government jobs by providing reports their bosses want to hear?

I’m sure JayPo is a nice guy at a bar but he’s not a principled man and will not take the hard decisions, just like Bernanke, Yellen, Greenspan, etc. and will instead try to appear like Paul Volcker but instead deliver results like Arthur Burns.

Why do I rant about this?

The data is starting to pile up against his viewpoint on the economy of no inflation with no stagnation. For example, the non-seasonally adjusted car sales are absolutely stagnant since the Great 1970’s re-inflationary period began in 2021:

A meager 77,000 higher than 2009. But the American financial media, political elites, and academics tell us that the new “immigrants” will be massive consumers of items like automobiles and housing and that should keep the bubble expanding. Yet here we are, struggling to reach normal levels for the past decade since the GFC, much less achieve new all time highs.

So how is housing doing if we are discussing the swarms of immigrants eager to put 20% down on overpriced $400,000 homes?

For some reason, weird as it seems, I do not think it was the Tholian Web which caused Sulu to scream, I think it is the stupidity of the solution to the Great Financial Crisis. Instead of letting the reset and deflationary episode finish as needed in 2009, the Fed with the political elites decided that allowing price insanity to double since March 2009 to be more important.

But what is the true impact?

Here is your chart of the week, reflecting just how far out of reach housing is for close to 50% of the American public without government assistance or financial chicanery:

For those who are mathematically challenged, here is the definition of the word “median”:

I’m not an expert, I’m a historian and an observer who studied economics in college just for the hours.

But 5.5% seems to this individual to be somewhat lower than the over 100% housing price increase and thus why there seems to be a further risk of a massive housing crash since real earnings have not even come close to keeping pace with new home sale prices. And 5.5% is far below the real rate of inflation during this period of time, which means those additional earnings are being destroyed by the cost of necessities, not even including the idea of purchasing a new home or an existing one.

Then again, rumors of NINJA loans and the reality of ARMS coming back into reality again like 2007-2008 is part of the news cycle so everything is awesome, right?

ARM Loan Share Rises as Borrowers Seek Affordability

Can You Still Get A No-Doc Mortgage In 2024?

(Hint: yes, you can get a NINJA loan)

Thank God we learned our lesson and the poors can still buy a home they can not afford.

Existing home sales are not much better (chart from Wells Fargo Economic Indicators):

Once again, blaming the pandemic and not price inflation destroying the purchasing power of the average wage earner seems to continue even though the NAR is oversupplied with people who want to sell homes in most major markets. Get rich quick via real estate only works once every decade and that party is just about over.


Meanwhile, before the next financial crisis has even started to accelerate our nation’s fiscal status is in its weakest position since the Revolutionary War.

The web is being built, but not by the Tholians.

If the powers that be do not figure out how to end the printing press insanity, tolerate a period of deflation, absorb and deal with a reduction in new home building and instead focusing on expanding financing affordability, Jay Powell will rightfully get tagged with the Arthur Burns moniker.

The Bond Vigilantes can and will ride again.

Inflation is not tamer but higher for longer to attempt to reduce the rate of inflation does nothing to prevent the fiscal authorities from forcing the Fed into the TINA nightmare.

Considering the political nature of the Fed and our elites in Washington plus New York working together at the great DC whore house, odds are that the eventual solution once a hard landing appears will be to print our way out of this nightmare and finance a “living wage” solution for the poors.

Much like the Tholian Web episode of the classic Star Trek, if we do not escape soon, all of the energy from our economy will be sucked out and our nation will truly descend into a new period of dark MMT economic insanity.

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