The latest from our old friend High Plateau Drifter:
Last night I watched (once again) the movie The Big Short with Christian Bale as Michael Lewis. It is a history lesson on the crisis of falling housing prices in mid 2007 through 2008 and the mortgage default crisis which accompanied that collapse.Previously on CBS regarding the bond bear market.
The key point of the movie is the psychology which makes a few people see the obvious in years 2006 and 2007 while most others ignored it. And when I say "obvious" I mean the weakening and exhaustion of a trend in which mortgage finance outpaced incomes thus making a collapse in housing prices inevitable just as night inevitably follows day.
Moving now to present day matters we have the matador moving ever closer to the raging bull of deficit spending armed with only a pocket knife instead of a sword.
The future for financial instruments is baked into the cake.
Federal "Deficit" Federal Debt Increase For year 2018 $833b $1,271b
Note that the "Debt Increase" includes the interest cost of nearly $400 billion on $15.9 trillion of public debt outstanding, or 2.5% interest (not counting interest on, or principal amount of inter-governmental debt holdings). As you can see, there is an awful lot of rate risk north of 2.5% on outstanding Treasury debt. And given that the President is something of an expert on default and restructuring, I wouldn’t put it past him to try an executive order "cram down."
As of now, only the first 7 years of the post WW-2 baby boom generation (1947 through 1964) had reached age 65 and thus became eligible for social security benefits pictured below. There are another 10 years of baby boomers to go! And in year 2018 Social Security is already costing us one trillion dollars per year meaning that another 10 years of Boomers along with cost of living increases will send it North to 3 trillion. And the big advances in medicine mean we keep more people alive for longer periods of time.
Add to the above the increasing automation of manufacturing and even service industries, and the Red State rebellion that Trump provoked will be much worse and likely turn violent.
Of course those of us who were econ majors in college will wonder how demand is to be maintained when vast numbers of former middle class voters are thrown out of work due to automation. The solution will be a guaranteed income for all – as championed by Bernie Sanders and Ocasio-Cortez. The problem is that as unemployment climbs up the skill and intelligence ladder, at some point the system will be paying money to many capable, aggressive and very angry males. Make them unemployed, and they will have time for face to face communication and the mobility to organize into an irresistible force in ways the system cannot track.