{"id":1190949,"date":"2023-03-11T11:10:59","date_gmt":"2023-03-11T16:10:59","guid":{"rendered":"https:\/\/bugaluu.com\/news\/what-comes-after-the-great-liquidation\/1190949\/"},"modified":"2023-03-11T11:10:59","modified_gmt":"2023-03-11T16:10:59","slug":"what-comes-after-the-great-liquidation","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/what-comes-after-the-great-liquidation\/1190949\/","title":{"rendered":"What Comes After The Great Liquidation?"},"content":{"rendered":"
\"\"<\/a><\/div>\n

What Comes After The Great Liquidation?<\/span><\/p>\n

\n

Authored by MN Gordon via EconomicPrism.com,<\/em><\/a><\/p>\n

Expectations were great.<\/strong>\u00a0<\/p>\n

When 2023 started, there was a general sense that the stock and bond markets had turned over a new leaf.\u00a0 A repeat of 2022 was out of the question.<\/p>\n

The primary assumption was that inflation would relent.\u00a0 After that, everything else would neatly fall in line. <\/strong>\u00a0Specifically, interest rates would decline, and the next great stock market boom would bubble up just in time to bailout the meager retirement savings of aging baby boomers.<\/p>\n

That was the general outlook when 2023 commenced.\u00a0 But instead, the opposite is now happening.\u00a0 Inflation is persisting.\u00a0 Interest rates are rising.\u00a0 And stock and real estate prices are headed down, down, down.<\/p>\n

This week, for example, Fed Chair Jerome Powell, in his semi-annual Congressional testimony, clarified that interest rates would go\u00a0\u201chigher than previously anticipated.\u201d<\/em>\u00a0<\/strong> He also noted that, if needed, he\u2019s\u00a0\u201cprepared to increase the pace of rate hikes.\u201d<\/em><\/p>\n

In other words, the much-anticipated Powell pivot has gone on indefinite hiatus.\u00a0 You can fight the Fed and buy stocks if you must.\u00a0 But you won\u2019t likely be very happy with the results.<\/p>\n

Moreover, Fed rate hikes are only part of the story.\u00a0 To be clear, the Fed\u2019s rate hikes are to the federal funds rate.\u00a0 However, they do, in fact, influence Treasury rates.<\/p>\n

Since March 2022, the Fed has hiked the federal funds rate from a target range of 0 to 0.25 percent to a range of 4.50 to 4.75 percent.\u00a0 As a result, and over this duration, the 2-year Treasury yield has jumped from 1.75 to over 5 percent.<\/p>\n

What to make of it\u2026<\/p>\n

Radical Action<\/strong><\/h2>\n

Rising interest rates mean higher borrowing costs.\u00a0 And higher borrowing costs mean a greater percentage of income is needed to service the debt.<\/strong><\/p>\n

This has various ramifications.\u00a0 For example, if more income is being used to service the debt there is less income available to use for savings, investments, or to buy other goods and services.<\/p>\n

With less money available to spend or to invest in capital markets, economic growth stagnates.\u00a0 This, in short, intensifies the problem.<\/p>\n

With less capital and savings available, and less spending taking place, there\u2019s ultimately less economic activity.\u00a0 And when there\u2019s less economic activity taking place there\u2019s less cash flow available to service the debt.<\/p>\n

To then make up the difference, consumers must use greater amounts of consumer debt to attain the consumer spending needed to preserve their lifestyle.\u00a0 This, again, is a dead-end street.\u00a0 Applying additional amounts of debt is a short-term solution for a long-term problem.<\/strong><\/p>\n

The debt, unfortunately, doesn\u2019t magically disappear.\u00a0 It piles up until a point where radical action must be taken.\u00a0 Creditors get stiffed.\u00a0 Or debtors massively reduce spending to pay down the debts previously incurred.<\/p>\n

It is all very basic.\u00a0 A simple acceptance of reality, and the determination to take the necessary footwork, can result in great things.<\/strong>\u00a0 In this case, it can turn the pain involved with digging one\u2019s way out of debt into the foundations for building wealth.<\/p>\n

A debtor that is successful at digging themselves out of a hole by massively reducing spending will then have the opportunity to build real wealth.\u00a0 Because once there is no debt left to pay off, the excess money can be saved and invested.<\/p>\n

Americans on the Hook<\/strong><\/h2>\n

Structuring your lifestyle and spending habits to be less than your income is fundamental to building real wealth.<\/strong> \u00a0<\/p>\n

The best investment opportunity in the world could be right in front of your face.\u00a0 Yet if you don\u2019t have the capital, you won\u2019t have the ability to capitalize on it.<\/p>\n

We\u2019re not sure why, but few people have the discipline to spend less than they make, and then save and invest the difference.<\/strong>\u00a0 This is why most people should be prepared to eat canned lima beans in retirement \u2013 the puke green ones the cafeteria served you in grammar school.<\/p>\n

Over the years, U.S. debtors \u2013 including consumers and the government \u2013 have spent their way into a massive debt hole.\u00a0 For several decades, these massive debts have been masked by low interest rates.\u00a0 The days of refinancing at ever lower rates are over.<\/p>\n

Interest rates are rising.\u00a0 But what if interest rates must increase much, much higher than Powell anticipates?<\/p>\n

The truth is, there are groundbreaking events that are well beyond Powell\u2019s control.\u00a0 For example, Japan may be the world\u2019s largest holder of U.S. Treasuries.\u00a0 But the appetite Japanese investors have for Treasuries may be souring.\u00a0 In this respect, the\u00a0Wall Street Journal<\/a>\u00a0recently posited the following:<\/p>\n

\n

\u201cLast year, the Federal Reserve\u2019s interest-rate increases weakened the yen and lifted the cost of hedging against currency fluctuations for Japanese investors buying U.S. assets. \u00a0That drove many to unload U.S. bonds, in a shift from years of purchases that made Japan the world\u2019s largest foreign holder of Treasurys. \u00a0Now, investors are growing worried the selling will resume, especially with Treasury yields hurtling toward decade-plus highs.<\/em><\/p>\n

\u201cWithout that support, Americans could be on the hook for higher borrowing costs on everything from single-family mortgages to business loans.\u201d<\/em><\/p>\n<\/blockquote>\n

Are you an American?\u00a0 Do you delight in the prospect of being on the hook for higher borrowing costs?<\/p>\n

What Comes After the Great Liquidation<\/strong><\/h2>\n

Fed rate hikes, to contain the inflation of its own making, are contributing to higher Treasury rates and higher borrowing costs.\u00a0 This will continue to push borrowing costs higher and higher until something breaks.<\/strong><\/p>\n

What will that something be?\u00a0 And what will be the first something to break?<\/strong><\/p>\n

Will inflation break first?\u00a0 That\u2019s the soft-landing scenario that Powell is after.<\/p>\n

Or will the economy and big banks break first?<\/strong><\/p>\n

[ZH: Is SVB the ‘thing’ that broke?]<\/em><\/a><\/p>\n

In this scenario, there would be mass layoffs, business closures, and a giant wave of bankruptcies.\u00a0 There would also be the blow-up of several big investment banks or significant investment funds.<\/p>\n

Alas, we believe the soft-landing scenario is highly unlikely.\u00a0 The recklessness that was committed in the run-up to the coronavirus panic, which then went into complete overdrive when the whole world lost its mind, must be reconciled.<\/p>\n

There\u2019s no easy way out of this one.\u00a0 Mass liquidation is coming.\u00a0<\/strong> Still, when the dust settles consumer prices will remain higher than they were at the start of 2020.<\/p>\n<\/p>\n

There\u2019s no going back to the prices of January 2020 for the same reason there will never, ever be penny candy again.\u00a0 The dollar debauchery that took place has permanently disfigured prices.<\/strong><\/p>\n

The central planners, eager to deliver something for nothing, caused an epic disaster.\u00a0 And they won\u2019t stop.\u00a0 They\u2019ll continue to act \u2013 and they\u2019ll say they\u2019re acting with courage.\u00a0 What then?<\/p>\n

More than likely, through money supply expansion and currency debasement, the central planners will continue down the inflationary path.\u00a0 Maybe it will continue at a subtle or moderate rate over many years or decades.\u00a0 Or they could trigger runaway inflation, where velocity spikes up and prices double and triple in just a few weeks.<\/p>\n

No doubt, we\u2019ll all find out soon enough.\u00a0 In the meantime, pay down debts, save cash, buy gold, and stack silver.\u00a0<\/strong> With a little luck, you\u2019ll make it though with a slimmer waistline and a greater mistrust of the planners in charge.<\/p>\n

*\u00a0 *\u00a0 *<\/p>\n

There\u2019s also the unthinkable to consider.\u00a0 Is China secretly planning to attack Taiwan?\u00a0 Are your finances prepared for such madness?\u00a0 Answers to these important questions can be found in a unique Special Report.\u00a0 It\u2019s called,\u00a0\u201cWar in the Strait of Taiwan?\u00a0 How to Exploit the Trend of Escalating Conflict.\u201d<\/a>\u00a0 You can\u00a0access a copy<\/a>\u00a0for less than a penny.<\/em><\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nSat, 03\/11\/2023 – 14:30<\/span><\/p>\n

From:Zerohedge<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

What Comes After The Great Liquidation? Authored by MN Gordon via EconomicPrism.com, Expectations were great.\u00a0 When 2023 started, there was a general sense that the…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1190949","post","type-post","status-publish","format-standard","hentry","category-news","wpcat-1-id"],"_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1190949","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1190949"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1190949\/revisions"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1190949"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1190949"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1190949"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}