Category Archives: Interest Rates

I Hope This Is Just A “Correction”

I’ve been watching the stock market jump generally jump up, up, up and up nearly daily since it began its latest meteoric rise in oh, about 2015. Yesterday and today ended that trend. That makes me a bit uneasy,  because I have a few accounts that are completely invested in the markets, which are designed to weather short term downturn with the confidence that they will rebound and increase like they always do. We haven’t had a severe slide in about ten years, but I’d say the imaginary trend line favors increased value. Observe a 100 year curve:

Dow Jones – 100 Year Historical Chart

dow-jones-100-year-historical-chart-2018-10-11-macrotrends(1)

So the conventional wisdom suggests that growth is here to stay over the long haul, and if there are some bumps along the way it’s cool because stocks always come back from a selloff. And that’s typically correct.

You have heard Trump call this his economy. We know it’s not, but that’s what he tells his trucker hat wearing mouthbreathing voters who aren’t sharing a dime of this prosperity. The country has been in recovery since the Obama administration. Now Trump and his party did slash taxes on the Richiest of the Richies, and that apparently has led boards of directors everywhere to start Hoovering up their own stocks, which as I understand it causes an elevation in the trading value of said stocks. In my head, it’s like a big pyramid scheme or a you buy my shit, I’ll buy yours situation. I know I am oversimplifying this because I’m a simple man when it comes to economics and money in general. But the big secret that the GOP kept from everyone is that they were going to do that. Some of that money may have gone to expansion and hiring, but not in the quantities they said it would. Like usual, we were told it’d be rocket fuel for good job creation (ignoring the fact that runaway growth is actually dangerous and short-sighted because it presumes a high degree of sustainability and when you take a resource you are hastening its depletion), and that hasn’t really been the case. True, indicators are still saying that we’re at full employment (even though most people have two of those jobs to make rent) and that wages are inching up, but that’s probably in spite of the tax cut. It certainly hasn’t done the working class much good and that’s who was sold this economic voodoo. Factories and business are shuttering all over the place, in direct contradiction to what Donald Trump says.

We cannot make the mistake that rising tides lift all boats. Some of those tides are being held behind gilded locks and dams.

Anyway, since the economy didn’t expand anywhere near the amount that they predicted (an absurd 4% or more if I remember right), the higher tax revenue failed to materialize. By now, we should be laughing in the face of anyone who brandishes a Laffer Curve in defense of tax cuts. But some fall for it, because it’s logical in its own way. So anyway, what does that mean? That means Uncle Sam needs a credit limit increase.

Yup. Deficit spending.

If you are a Republican, the solution is to curtail services to the public. They never admit that their dumb tax cuts didn’t do shit except make rich people richer. How they sell making the poor poorer to the poor is indeed quite a feat, accomplished by bullshitting poor people into thinking that someone else but surely not them are the poor sucking up services and “entitlements”. This gambit tends to take a racist tinge because stratification sees color and Republicans are good with that generally, as long as they keep the blame off them and the corporations who paid for their seats in government. The idea that Republicans are the party of fiscal discipline is the biggest crock of shit going. They cause a problem, and then scapegoat “big government” and want to cut everything you need to get by.

But if you can’t cut because people are about to tell your party to go fuck itself at the polls, you will be borrowing.

Enter the Fed. The Fed sets the prime interest rates for borrowing. When we borrow, we have to try and make it an attractive investment to a creditor. The more loaded we are with debt, the less interest there will be in holding that debt because it’s assumed that we are overleveraged (we are). However, much like the stock market going up in perpetuity, the general consensus is The United States will be around to pay its bills no matter how much we rack up. Given that we are perpetually hostile and armed with thousands of nuclear weapons, the world assumes we aren’t going to be destroyed without taking everyone with us. Yet the game must be played properly until we lash out in a fit of capitalistic aggression; we need to increase the interest to maintain the interest, so to speak. So the Fed increases rates, and consequently the interest rates on our debt begin to climb to make the return look good to China, Japan, the Saudis, or anyone else that wants to pick up our tab since we screwed up and cut taxes.

The Fed has raised rates rather significantly this year, three big jumps from March to October in order to make ends meet. Jittery investors begin moving money to the higher interest bonds instead of volatile stocks.

Bust. Bye, 1300 points in 48 hours.

Enter the master chiseler, Donald Trump. As regular readers know, I think Trump is a total dumbshit. One thing he is good at though, is being a crook and not paying people what they are owed. As we all know, he has declared bankruptcy multiple times and is being sued by like 800 people demanding money for services rendered. So his first instinct is to try to do a screw job on our creditors and not pay the bills at the terms agreed to. He has done this obliquely by attacking The Fed, who is trying to manage our money crisis the only way it knows how. In unprecedented irony, he says that “The Fed has gone crazy“, and demands that rates slow down so we can pay less on all of our debts.

If you wanna talk crazy, Donald, let’s talk about the trade wars you started that have crippled several sectors of the economy, or the farmers nearly going out of business because we keep tossing ag workers out of the country.  And you have the nerve to tell others their actions are crazy? Give me a fucking break, chump.

There are many other factors making possible this pickle we find ourselves in that I will never be able to fully understand, listed at the link in case anyone wants to break it down for themselves. Lord knows people have been writing about perfect economic storms for as long as I have been aware of economics and they never materialize, except when they do (looking at you, W). I’m hoping we aren’t heading for a more massive slide right now and all these worried words are pointless-but the truth is the whole world is smarting, and that means big trouble for those of us who are trying to save a pittance now (and I/we play no small role in this downturn indirectly, if you can fathom that) in order to take the place of our dwindling Social Security and healthcare benefits that have been bloodlessly slashed by politicians who simply don’t work for us anymore.

Please, if I am misgiven about causes and effects, do not hesitate to tell me. I’m learning as fast as I can.

 

 

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