Handmaid of Leviathan, Whore Of Wall Street, Part 3

Here is a smoking gun if there ever was one. The Fed’s Wall Street fanboys claim that yields on Treasury debt go down when the financial market in its clairvoyance anticipates a recession. Purportedly, credit demand falls sharply, thereby clearing the way for interest rates to fall, as well.

But when you look at the actual data—no cigar!

Household and non-financial business debt (black area) and total debt securities and loans outstanding for the combined public and private sectors (purple area) have risen relentlessly during the last seven recession cycles. Indeed, only in the case of the Great Recession of 2008-2009 was there even a temporary down-blip in debt levels. Even then, total debt outstanding fell by only 1.4%at the Q2 2010 bottom, while the decline for private sector debt alone (black area) was barely 5%.

After that, it was off to the races. With a vengeance.

Since the pre-crisis peak in Q4 2007, private sector debt outstanding has risen by 67% and total public and private debt is higher by 88%. In dollar terms, this means the US economy is now lugging around $46.5 trillion more debt than it was carrying when the US economy purportedly buckled under the weight of too much debt during the financial meltdown and recession of 2008 and 2009.

Goodness gracious. All the latter day moralists at the time were wagging their tongues scornfully about the need for America to sober up and get off its debt binge. But a lot of good that did—not when the mad-money printers at the central bank professed to know better.

In any event, it is not “price discovery” in honest debt markets that causes interest rates to fall in anticipation of recession. Rather, Wall Street’s legions of unproductive speculators jump on the bond-buying bandwagon preemptively, thereby front-running the next round of Fed rate cuts in anticipation of falling yields and rising prices. That is to say, they have their bushel baskets wide-open, collecting unearned gifts from the Eccles Building dolts who falsely profess to be the indispensable monetary nannies who keep the free market on the straight and narrow.

What is being “priced out”, therefore, is not the blooming, buzzing mass of $28 trillion of GDP or even the supply and demand dynamics in the bond pits. Instead, the motor force of yields and interest rates is the mind games of 12 members of the FOMC who desperately wish to avoid a hissy fit by disappointed speculators—whom have already laid down heavy futures market bets instructing the FOMC as to exactly when and by how much they need to toggle interest rates in the periods immediately ahead.