Normal For Thee But Not For Me!

Thumbs up, thumbs down, happy, sad, red greenMSN reports:

“Federal Reserve Bank of New York President John Williams said he expects inflation to continue falling in the second half of this year.

…. Williams sees inflation…falling to about 2.5% by the end of this year before moving closer to 2% next year.”

He indicated things should return to “normal” by the end of 2025.

“Williams also weighed in on a broader debate…over the so-called neutral rate. That’s the theoretical level at which a central bank’s benchmark interest rate would neither stimulate nor restrict the economy.

…. Williams added that the factors that have held interest rates down over the last decade are still in play, pointing to things like demographics and a willingness to hold US Treasuries.”

QZ.com quotes Treasury Secretary Janet Yellen:

“Janet Yellen says inflation will return to normal without a recession….

The Treasury Secretary thinks we could be out of the woods as early as next year.”

At the end of the Obama presidency, she proclaimed:

“Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not [happen] in our lifetimes and I don’t believe it will.”

Yellen, a political hack, proclaims all is well.

What is normal?

Merriam-Webster offers a variety of definitions:

  • conforming to a type, standard, or regular pattern: characterized by that which is considered usual, typical, or routine
  • occurring naturally
  • approximating the statistical average or norm

As a cancer patient, my blood tests are presented with green numbers in the “normal” range and those outside in bold red. The latter are subject for discussion with your doctor.

Several doctors explained, “normal is subjective, based on a lot of factors, age and general health being great examples.

Normal for thee, may not be normal for me!

Lawrence Yun, Chief Economist at National Association of Realtors predicts:

“The Federal Reserve is…cautious about inflation, but 6 to 8 rounds of rate cuts through the end of 2025 are likely to bring the interest rates down from current high levels to match those during the pre-COVID years. Do not expect any major declines in mortgage rates, however. The federal budget deficit is massive. Heavy government borrowing will mean less money available for mortgage lending.”

Is he nuts, 6 to 8 rate cuts by the end of 2025?

Sarah Hansen asked, What is ‘normal” for interest rates?

“For many investors, it may seem like the current environment is an aberration. Instead, bond watchers say the rate landscape we’d known since the 2008 financial crisis was the true anomaly. That means investors may need to get used to these conditions. ‘We’re in a more normal period of interest rates,’ explains Kristy Akullian, iShares senior investment strategist at BlackRock.

‘The last 15 years were the exception rather than the norm.’ She notes that over the past 60 years, 10-year Treasury yields have averaged about 5.9%.

This landscape has important implications for investors, ranging from how stocks are valued to how much money retirees can safely withdraw from their portfolios.”

Fred Chart: Interest Rates: Long-Term Government Bond Yields: 10-Year: Main (Including Benchmark) for United StatesSarah Hanson adds:

“While the recent runup in rates may be rattling some investors, the return to relative normalcy does have a silver lining. After years of negative returns, real yields have now moved “meaningfully higher.”

Positive CD rates help keep Baby Boomers’ retirement dreams afloat.

Fred Chart: Interest Rates: 3-Month or 90-Day Rates and Yields: Certificates of Deposit: Total for United StatesReturn to normal??? Ten-year treasuries are around 4.25%, well below the 60-year statistical average.

We don’t need any damn rate cuts! Returning rates to pre-Covid levels might be good for thee… (banks and government), but NOT for me (the middle class). Rate cuts will make it impossible for the middle class to earn safe income, while fueling another round of horrendous inflation. Home buyers will adjust and be fine.

When the government bailed out the banks, the income loss to savers was called “collateral damage.” Social Security is bankrupt; benefit reductions are likely. Move rates back toward pre-Covid levels, expect catastrophic, not “collateral damage.”

Don’t buy any election malarky

Bill Bonner explains Going Broke The Traditional Way:

“Fed rate cuts do not magically create more real wealth. Wealth is created by increases in productivity…. It is the result of hard work…and forbearance. Immediate pleasures must be put off…lessons must be learned. Capital cannot be consumed; it must be saved and invested wisely, skillfully. Everything else is distraction…fraud and fantasy.

…. Lowering the cost of credit makes it easier to buy things…. More credit creates short-term ‘fictitious’ wealth, not long-term real wealth. Sellers record the increase in sales as a plus. The feds record the extra sales as an increase to GDP. But until the bill is settled, the transaction is incomplete.

As debt increases so does the cost of debt service (interest) and the number of debtors who won’t be able to pay – including the biggest debtor in the world, the US government. And so does the amount of wealth that is likely to vanish in the next crisis. This is especially true when the borrowing was done under false pretenses – that is, at interest rates that are unrealistically or artificially low.

…. This is a nation going broke in the traditional way…by adding phony wealth and real debt.”

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“Normal” = occurring naturally, not government manipulated.

Bonner explains the upcoming election:

If empires must decline, they must find the leaders who can help them do it.

  • …. George W. Bush did not have to squander $8 trillion on a silly ‘war against terror.’
  • Barack Obama and Ben Bernanke did not have to distort the whole economy, after the mortgage finance crisis of ’08, with bailouts for Wall Street and ultra-low interest rates for a decade.
  • Donald Trump did not have to panic when the Covid virus appeared….
  • Joe Biden did not have to blow up the empire’s finances with another $15 trillion in pointless debt.

These policy choices were almost preternaturally dumb. But they — like a lit cigarette at a gas pump — were just what the aging empire needed.”

John Mauldin weighs in:

“The CBO now projects federal debt will reach $50.7 trillion in 2034 which will, if their other economic assumptions are correct, equal 122% of GDP.

…. What kind of yield will investors demand to buy US debt with a $3 trillion deficit?

…. It is somewhat amusing…that people believe a 50 or 100 basis point cut will make some kind of difference in 2025 when deficits are going to increase. If you don’t think that deficit spending has an effect on inflation, you are not paying attention.

…. We have a national election that will be focused on debt and inflation. All sorts of political promises will be made and there will be serious differences. Whomever is elected will be promising they will fix the problem. Except they will not be able to get Congress to go along with whatever their proposed solution is. It will take serious compromise, which won’t happen.

…. It will take a crisis of biblical proportions in order to create the environment for a compromise that none of us will like.

…. I expect our political heroes to keep kicking the can down the road until the road gets too steep, as it will at some point. The limits are real. Private investors can’t and won’t buy government debt whose repayment is doubtful in real inflation-adjusted terms—or will demand such high rates the debt will explode even higher.

Having eliminated all other options, crisis is the only remaining possibility.”

Quoting the book, This Time is Different:

“Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang!, confidence collapses, lenders disappear, and a crisis hits.”

Martin Armstrong concludes:

“There is no limit to what the government will spend with ‘money’ that simply does not exist. Governments continue to borrow perpetually with no real intention of paying back their debts. This…Sovereign Debt Crisis will implode like a nuclear bomb the likes of which we have never witnessed.”

NY Fed Chairman Williams spilled the beans:

“…. Factors that have held interest rates down over the last decade are still in play, …. a willingness to hold US Treasuries.”

Former Fed head Ben Bernanke was wrong when he told us:

  • “The U.S. government has a technology, called a printing press that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
  • “The Federal Reserve will not monetize the debt.”

Pure BS…. Inflation is the cost of printing dollars, and the Fed has already monetized trillions.

While the Fed will try to manipulate artificially low rates, worldwide demand for US debt is shrinking rapidly; phony rates won’t cover the risk. “Occurring naturally” will result; the market will set interest rates.

The government will pay up or print more phony money. The Fed can’t continue to hide the true cause of inflation, trillions in deficit spending by our government.

The nuclear bomb (debt crisis) is being armed with each bond auction. The bomb needs to detonate in Congress, they broke it and must fix it.

Leave interest rates alone, they are normal – spending is outside of historic norms. The public will scream bloody murder; it’s gonna happen one way or another!

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On The Lighter Side…

I hope everyone had a good Fourth of July. I told reader Thomas S. C. that the older I get, the more I realize how lucky we were to have our founding fathers. They understood the abusive power of a central government and designed a system that, if followed as designed, would keep the real power with the people.

The political class has pushed back against the Constitution for well over 200 years, things have changed, but so far, it’s still the best government for the common man in the history of the world.

Citizens of the world are starting to push back against the evils of big government. The transition will be difficult, but it is certainly possible.

We were supposed to have a 4th of July golf cart parade in our little community, ending with a neighborhood picnic. Instead, we had a dandy thunderstorm and rain for most of the day, so it got moved to Saturday. Neighborhood get-togethers are lots of fun.

Quote Of The Week….

Banks Make Billions Printing/Lending Money When They Don't Have To Worry About Being Paid Back!“It sure looks pretty, but it’s

just another piece of paper.”

— Ed Steer – commenting on the new $100 bill design

And Finally…

Subscriber Zeus shares some “farmers wisdom” for our enjoyment:

  • Your fences need to be horse-high, pig-tight and bull-strong.
  • Keep skunks and bankers at a distance.
  • Life is simpler when you plow around the stump.
  • A bumble bee is considerably faster than a John Deere tractor.
  • Forgive your enemies; it messes up their heads.
  • Do not corner something that you know is meaner than you.
  • It don’t take a very big person to carry a grudge.
  • You cannot unsay a cruel word.
  • Every path has a few puddles.
  • When you wallow with pigs, expect to get dirty.
  • Sometimes you get, and sometimes you get got.

And my favorite: (certainly applicable to government spending)

  • If you find yourself in a hole, the first thing to do is stop diggin’.

Until next time…

Dennis Miller

“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken

 

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