Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Interest Rates

Economy’s Performance Continues to Beat Forecasts

This article appeared online at TheNewAmerican.com on Friday, March 2, 2018: 

Three more measures of how the U.S. economy is performing once again beat economists’ forecasts: consumer confidence, jobless claims, and manufacturing. Tuesday’s release by the University of Michigan of its monthly “Survey of Consumers” showed all three of its indexes notching highs not seen in years. Its Index of Consumer Sentiment (“How are you feeling about your finances today?”) hit 99.7 compared to January’s robust 96.3. That is the second-highest level since 2004, reflecting, according to the survey’s chief economist Richard Curtin, consumers’ “favorable assessments of jobs, wages, and higher after-tax pay … overall, the data signal an expected gain of 2.9% in real personal consumption expenditures during 2018.”

The forecasters in this instance nearly got it right. The consensus reported by the Wall Street Journal expected 99.5. But that’s about as close as any of them got.

The U of M’s Index of Current Economic Conditions (“How does the economy look to you from your personal perspective?”) also beat expectations,

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Inflation Concerns Unfounded, Wall Street Moves Higher

This article appeared online at TheNewAmerican.com on Wednesday, February 14, 2018:  


Money-supply (this is an old chart, but you get the idea)

Once Wall Street traders read beyond the headlines released early Wednesday morning by the Bureau of Labor Statistics (BLS), they reversed the early selloff and bid the market higher.

Those traders were on high alert following the January report that wages had jumped nearly three percent last year. This triggered concerns that inflation was imminent, and that the Fed would institute interest rate increases which would slow the economy.

The headline from the BLS seemed to confirm those concerns:

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Despite Stock Sell-off, Few See Recession

This article appeared online at TheNewAmerican.com on Friday, February 9, 2018: 

Barbara Friedberg must be feeling pretty good right about now. Last October she made “10 Bold Stock Market Predictions for 2018,” and already she is scoring five out of 10:

Value stocks will triumph;

Cash will be king;

Inflation will inch up;

Market volatility will return; and

Bonds will offer higher yields.

The jury is still out on her prediction that “the Bull Market [in stocks] will end in 2018.”

Friedberg is no lightweight. She is a former portfolio manager and has taught finance and investments at several universities. She authored a popular book in 2014, How to Get Rich Without Winning the Lottery.

Despite the mantra that stocks’ performance is often a harbinger for future economic performance, few at present agree with her about the bull market in stocks being over.

The sell-off (which appears to be continuing as this is being written) in stocks is impressive. The Dow Jones Industrial Average (DJIA, or The Dow) has lost 3,227 points since its high on January 26, or 12 percent, while the S&P 500 Index (SPX) has dropped by 290 points, or 10 percent, since then as well. This is into “correction” territory and should be drawing negative outlooks on the future of the U.S. economy from every quarter.

But they can’t be found. Aside from perma-bears Michael Snyder and David Stockman, few of the usual suspects can be found who agree with Friedberg. When the Wall Street Journal polled its economists, they remained adamant about the health of the economy: GDP will continue to grow and unemployment will continue to drop:

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Markets Move Higher Following Crash Instigated by Obscure Agency

This article appeared online at TheNewAmerican.com on Wednesday, February 7, 2018: 

English: Logo of The Goldman Sachs Group, Inc....

With Wall Street regaining its footing following the decline that started last Thursday, commentators in the mainstream media are still searching for the decline’s cause. Initially they claimed that it was an unexpected surge in inflation evidenced by the rise in the yield of 10-year U.S. Treasury notes approaching three percent (in early September it was closer to two percent). This was followed by the jobs report that announced that wages increased 2.9 percent year-over-year, up from just over two percent previously.

Writers at the Wall Street Journal dug deeper: The selloff was caused by — ready? — “volatility sellers, risk-party funds and algorithmic trading.” They then went into mind-numbing detail about how these strategies work and how the crash cost people using in them in excess of $200 billion.

Peter Schiff, CEO of Euro Pacific Capital, told TheStreet.com that maybe it was the Federal Reserve’s unhappiness with The Donald:

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Treasury Advisory Committee Says U.S. Must Borrow Trillions, Sending Stocks Down

This article appeared online at TheNewAmerican.com on Monday, February 5, 2018:

When an obscure advisory committee announced last Wednesday that the U.S. Treasury would have to borrow billions to fund Trump’s tax reform program, the stock market pitched headlong into a selloff, dropping Thursday, Friday, and early into Monday. Before the selloff, the Dow was approaching 26,300, but by the close on Friday it had lost 760 points. The rout continued into Monday, with the Dow down more than 1,200 points from Wednesday’s high. [Note the rout continued into Tuesday but found some footing by the end of the day.]

Much handwringing by commentators blamed the selloff on various technical factors:

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Trump’s Establishment Pick for Fed Chair, Jerome Powell, Won’t Rock the Boat

This article appeared online at TheNewAmerican.com on Friday, November 3, 2017: 

Nothing will change with Trump’s nomination of Powell to head the Fed. He has a strong establishment background and opposed former Congressman Ron Paul’s effort to “Audit the Fed.”

In announcing his pick to replace Federal Reserve Board chair Janet Yellen, President Trump was generous in his praise for Jerome Powell, a present Fed board member:

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Trump Takes Credit for Banner Jobs Report

This article appeared online at TheNewAmerican.com on Friday, August 4, 2017:  

Within 15 minutes of Friday morning’s release of the July jobs numbers by the Bureau of Labor Statistics (BLS), President Trump tweeted: “Excellent Jobs Numbers just released — and I have just begun. Many job stifling regulations continue to fall. Movement back to USA!”

He has good reason to cheer:

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Has Janet Yellen Tripped the Bernanke Indicator?

This article was published by The McAlvany Intelligence Advisor on Friday, July 14, 2017:

Official portrait of Federal Reserve Chairman ...

Official portrait of former Federal Reserve Chairman Ben Bernanke

During a question and answer period following her talk at the British Academy in London on June 27, Federal Reserve Chair Janet Yellen was asked if there could possibly be a repeat of the 2007-2008 financial crisis. She answered:

I think the system is much safer and much sounder [today]. We are doing a lot more to try to look for financial stability risks that may not be immediately apparent, but to look in corners of the financial system that are not subject to regulation, outside those areas in order to try to detect threats to financial stability that may be emerging….


Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.

Historians will remember similar assurances from then-Fed Chairman Ben Bernanke just before the real estate crash that led to the financial crisis back in 2007:

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Goldilocks Stock Market Making Forecasters Nervous

This article appeared online at TheNewAmerican.com on Thursday, July 13, 2017:  

At the moment, Wall Street investors are enjoying a “Goldilocks” economy: not so hot that it pushes prices up and not so cold that it causes a recession. Translation: Unemployment is low, wages are rising, interest rates are still near record lows, the gross domestic product (GDP) continues to grow (although not as fast as President Trump would like), and inflation is under control.

It isn’t a perfect world, but to Wall Street investors it’s close.

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CBO Raises Its Deficit, Debt Forecasts in Latest Revision

This article appeared online at TheNewAmerican.com on Wednesday, July 5, 2017:  

The Congressional Budget Office (CBO) just revised its January report with new data on spending, revenues, and economic growth. The revision isn’t good:

The projected rise in [annual] deficits would be the result of rapid growth in spending for federal retirement and health care programs targeted to older people, and to rising interest payments on the government’s debt, accompanied by only moderate growth in revenue collections.

In other words, the CBO simply doesn’t believe that President Trump’s plans to reduce regulation, cut taxes, and repeal ObamaCare will amount to much. Instead the government programs on autopilot — Social Security, Medicare, and especially debt service on the country’s $20 trillion national debt — will eat up nearly 80 percent of the government’s total budget in less than 10 years. Said the CBO:

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Illinois Countdown to Junk Status Continues

This article appeared online at TheNewAmerican.com on Thursday, June 29, 2017:

English: IL State Rep. Susana Mendoza 2011 Pho...

Susana Mendoza

Despite the clock’s ticking on the downgrade of Illinois’ $25 billion of indebtedness to junk status on midnight Friday, investors remain complacent. True, some mutual funds have offloaded $2 billion of Illinois debt in the last few months, but the Wall Street Journal provided salve to investors’ concerns that those remaining invested will be badly hurt. Unnamed analysts, wrote the Journal, “predict prices would drop only a few cents in the event of a junk downgrade.” They noted that Vanguard Group has $1.2 billion of Illinois bonds spread across seven of its bond mutual funds, with a company spokesman saying that it is “comfortable with the risk/reward” of investing in the state’s bonds.


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Gov’t Collects Record $240 Billion in May; Still Runs $88 Billion Deficit

This article appeared online at TheNewAmerican.com on Friday, June 16, 2017:

English: Medicare and Medicaid as % GDP Explan...

Medicare and Medicaid as % GDP Explanation: Eventually, Medicare and Medicaid spending absorbs all federal tax revenue.

The U.S. Treasury announced on Thursday that the federal government collected more money in May than in any other month in history: $240.4 billion. In the same breath, it said that the government spent $328.8 billion, creating a deficit of $88.4 billion.

From a wage earner’s perspective, it meant that in May the average worker paid $1,572 in taxes but the government spent $2,149, making up the $577 difference by borrowing. Such deficit spending is making the S&P Global credit rating agency increasingly nervous.

Just a week earlier, the agency affirmed its best rating — A-1+ — for the government’s “short term” debt, which means, in its own parlance, that the federal government’s ability to pay its current bills is “strong.” But in the longer term, the agency is far less sanguine. While holding its current long-term rating at AA+ (one full notch below its best rating), it said it’s unable to give the United States its highest rating (AAA) because of “high general government debt, relatively short-term-oriented policymaking, and uncertainty about policy formulation” for the future. It explained what it meant about that “uncertainty”:

Some of the [Trump] Administration’s policy proposals appear at odds with policies of the traditional Republican leadership and historical base. That, coupled with lack of cohesion, not just across, but within parties, complicates the ability to effectively and proactively advance legislation in Congress, particularly on fiscal policy. Taken together, we don’t expect a meaningful expansion or reduction of the fiscal deficit over the forecast period.

And what does it say about what’s likely to happen over that “forecast period”?

The U.S.’s net general government debt burden (as a share of GDP) remains twice its 2007 level. While, in our view, debt to GDP should hold fairly steady over the next several years, we expect it to rise thereafter absent measures to raise additional revenue and/or cut nondiscretionary expenditures.

What does that phrase “next several years” mean? How much time before the government’s national debt explodes upward? Says S&P:

Although deficits have declined, net general government debt to GDP remains high at about 80% of GDP. Given our growth forecasts and our expectations that credit conditions will remain subdued, thus keeping real interest rates in check, we expect this ratio to hold fairly steady through 2020. At that point, it could deteriorate more sharply, partly as a result of demographic trends.

Translation: Deficit spending will remain “subdued” for three and a half years, and then Katy bar the door!

Here is where S&P bows out of the picture, giving way instead to the Congressional Budget Office (CBO), which completed the picture in its March report:

Federal debt held by the public, defined as the amount that the federal government borrows from financial markets, has ballooned over the last decade. In 2007, the year the recession began, debt held by the public represented 35 percent of GDP. Just five years later, federal debt held by the public has doubled to 70 percent and is projected to continue rising.

“Continue rising”? By how much? And by when? The CBO is blunt:

Debt has not seen a surge this large since the increase in federal spending during World War II, when debt exceeded 70 percent of GDP. The budget office projects that growing budget deficits will cause the debt to increase sharply over the next three decades, hitting 150 percent of GDP by 2047.

So, that ratio of government debt compared to the country’s economic ability to produce goods and services was 35 percent in 2007, is now 70 percent, and will soon be 150 percent.

And what’s the reason?

The majority of the rise in spending is largely the result of programs like Social Security and Medicare in addition to rising interest rates. For example, Social Security and major health care program spending represented 54 percent of all federal noninterest spending, an increase from the average of 37 percent it has been over the past 50 years.

It appears to be an unstoppable locomotive. Non-discretionary spending (spending already locked into place by past Congresses and fully expected to be received by its beneficiaries) is on autopilot. And interest rates now coming off historic lows are only going to increase those annual deficits into the future as far as the eye can see.

The CBO is about as close as one can get to a truly non-partisan federal agency — one that has no partisan political agenda and is considered by many as the most reliable forecaster of future economic events. So it’s not only willing to cover, analyze, and present its findings candidly, it’s also willing to tell the truth. It asked, rhetorically, “What might the consequences be if current laws remain unchanged?” It answered:

Large and growing federal debt over the coming decades would hurt the economy and constrain future budget policy. The amount of debt that is projected under the extended baseline would reduce national saving and income in the long term; increase the government’s interest costs, putting more pressure on the rest of the budget; limit lawmakers’ ability to respond to unforeseen events; and increase the likelihood of a fiscal crisis, an occurrence in which investors become unwilling to finance a government’s borrowing unless they are compensated with very high interest rates.

Which brings one to the ultimate rhetorical question: What happens when even those “very high interest rates” aren’t enough to compensate those investors for the risks they are taking by loaning their money to a government that increasingly isn’t able to pay its bills and must continue to borrow increasingly massive amounts to cover its deficits? What happens next?

Former Heritage Economist Stephen Moore Refutes CBO’s Doom & Gloom

This article appeared online at TheNewAmerican.com on Wednesday, April 26, 2017:

Stephen Moore by David Shankbone, New York City

Stephen Moore

The Heritage Foundation’s Distinguished Visiting Fellow Stephen Moore, now a CNN economics commentator, thinks the latest report from the Congressional Budget Office (CBO) is far too pessimistic. Instead, he believes that most of the nation’s fiscal problems can be solved just by prodding the economy.

The CBO report, “The 2017 Long-Term Budget Outlook,” assumed that little would change politically over the next 10 to 30 years, despite promises from President Trump that his policies would “make America great again.” It projected that the Baby Boomers would exhaust the resources of Medicare and Social Security, and then those costs would be shifted directly to the Department of the Treasury.

If nothing changes, said the CBO, the percentage of the national debt held by the public (pension plans, mutual funds, foreign governments, and wealthy individuals) would double over the next 30 years, which would “pose substantial risks for the nation.”

The problem is exacerbated, said the CBO, not only by an aging population demanding that the government keeps its promises to them, but also

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Growing Pension Crisis Looms Over Wall Street

This article appeared online at TheNewAmerican.com on Monday, March 27, 2017:

Logo of the United States Pension Benefit Guar...

Logo of the United States Pension Benefit Guaranty Corporation

The looming state and municipal pension plan crisis, estimated by Moody’s at $1.75 trillion just a few months ago, has now been adjusted upward to  $1.9 trillion. But that number, according to Bloomberg’s Danielle DiMartino Booth, greatly underestimates the level of underfunding. It’s more like $6 trillion “if the prevailing yields on Treasuries were used.”

Instead, most state and local pension plans use a much higher, more generous, and more deceptive assumed rate of return of between six and seven percent, with some still clinging to a “castles in the sky” eight percent. Those assumptions greatly reduce the pressure on plan sponsors to make proper contributions to fund those plans.

And, according to the investment firm GMO (Grantham, Mayo & van Otterloo),

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Trump’s 2018 Budget Won’t Touch Social Security, Medicare

This article appeared online at TheNewAmerican.com on Monday, February 27, 2017:

English: The standard Laffer Curve

The standard Laffer Curve

Treasury Secretary Steven Mnuchin said on Fox News on Sunday that cuts in entitlement programs — i.e., Social Security and Medicare — won’t appear in the president’s budget: “We are not touching those now. So don’t expect to see that as part of this budget, OK? We are very focused on other aspects and that’s what’s very important to us.”

Trump’s budget for fiscal year 2018 (starting October 1, 2017) is expected to be presented to the House on Monday, March 13, just two weeks away. And there are a lot of moving parts that must be glued into place before then.

Those parts include

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Dallas Pension Plan Solution: Everyone Shares the Pain

This article appeared online at TheNewAmerican.com on Wednesday, February 22, 2017: 

Downtown Dallas in the background with the Tri...

Downtown Dallas in the background with the Trinity River in the foreground.

Following the pension plan board meeting on Monday, Presidents’ Day, a decision was made to accept the rough outlines of a proposal by Texas House Pensions Committee Chairman Dan Flynn to keep the Dallas police and firefighters pension plan from going bankrupt. Said city council member Philip Kingston, “Flynn’s [plan] is the best of the bad options.”

Everyone involved will share the pain: some by having their benefits cut back, and some by having the contributions increased.

Under the Summary issued late Monday night:

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Large Pension Plans Adjusting Their Targets Downward

This article appeared online at TheNewAmerican.com on Wednesday, December 21, 2016:  

English: Jerry Brown's official picture as Att...

California Governor Jerry Brown

Heading into negotiations this past weekend between the California governor’s office, teachers’ unions, and pension plan trustees managing the California Public Employees’ Retirement System (CalPERS), Governor Jerry Brown spoke the truth: “There’s no doubt CalPERS needs to start aligning its rate of return expectations with reality.”

Coming out of the meeting, the gap between the plan’s target rate of return and reality remained immense.

The last time CalPERS faced reality and flinched was in 2012 when

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Will Mick Mulvaney Pull Trump’s Financial Fat Out of the Fire?

This article was published by The McAlvany Intelligence Advisor on Monday, December 19, 2016:  

English: Official portrait of US Rep. Mick Mul...

Michael “Mick” Mulvaney (shown) rode the Tea Party wave in 2010 into Congress, replacing a 14-term Democrat from South Carolina’s 5th District. He has been handily reelected ever since. He took his oath of office seriously, saying in 2010 that “If political reporters want to know what drives the Tea Partiers, it is their belief in the Constitution. That’s what has always driven me in politics and will guide me in Congress.”

He remained as true to his word as any of those riding the same wave,

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Simmering Greek Financial Crisis Explodes Once Again

This article appeared online at TheNewAmerican.com on Thursday, December 15, 2016:  

Under the terms of its last bailout, Athens (above) was required not only to continue to impose harsh austerity terms (higher taxes, less government spending, better accountability, and increased tax collection enforcement onto Greek citizens) but to inform the unelected “higher” European authorities of any change in those terms by Athens.

Last week Athens unilaterally

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California’s Pension Plans Report Dismal Results, Increasing Shortfalls

This article appeared online at TheNewAmerican.com on Wednesday, July 20, 2016:  

Ted Eliopoulos, the chief investment officer of the country’s largest pension plan, the California Public Employees Retirement System (CalPERS), did the best he could with the bad news: “Positive performance in a year of turbulent financial markets is an accomplishment that we are proud of.” That “positive performance” was a measly 0.61-percent return from July 1, 2015 through June 30, 2016, on his $300 billion pension plan. That means that the fund is now about $100 billion short of meeting its future obligations.

But that $100 billion number greatly understates the real liability because it’s based on a pixie-dust assumption that the plan can earn an average

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.