Monday, August 7, 2017

The federal pickle

The ten year rate at 2.3% is just below the rate at which the budget is unsupportable, 2.5 and above.

That rate rise becomes a 60 billion jolt to the budget, the largest budget shock by ratio and in the fourth largest budget itim.  Congress cannot take the rate without the Fed doing a QE.  But the QE is a loss to the bond industry so we get, again, the medium term jump in the ten year as the Fed attempts to quantize it higher. Housing will dip appreciably.

The next can kick is a 82 yard field goal, and Congress has a broken leg. A 1.5%  GDP growth rate is becoming typical when even the optimists were settling for 1.9%. Many analysts have the bond market at breaking point, expect to see it all happen at once, a jump in rates, the sudden QE, and from there they differ.  Some think slow growth at 1.5, some think crash.  .I cannot predict as any of my predictions become impossible to bet with my 100% failure rate.

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