Americans continue to pile up debt, adding to numbers that were already at record levels.
US consumer debt increased by $20.1 billion in August, pushing total consumer credit to a record $3.94 trillion, according to the latest numbers from the Federal Reserve. That comes to a 6.2% annual growth rate.
The end of last week was tough on US stock markets. The Dow fell off about 200 points on Thursday and another 180 on Friday. But despite those drops, the Dow was only down slightly on the week. The NASDAQ, on the other hand, fell more than 3% last week and the S&P 500 was off about 1%.
As Peter Schiff pointed out in his most recent podcast, the catalyst was rising interest rates, which the markets have been basically ignoring up until last week. Granted, the stock market drops weren’t steep compared to an October crash, but there is still plenty of time left in the month. Peter noted that high interest rates served as the backdrop for Black Monday in October 1987.
The SchiffGold Friday Gold Wrap podcast combines a succinct summary of the week’s precious metals news coupled with thoughtful analysis. You can subscribe to the podcast on iTunes.
Death-spiral — The downward, corkscrew-motion of a disabled aircraft which is unrecoverably headed for a crash.
The US federal government may well be in a death spiral – or perhaps we should call it a debt-spiral.
Interest rates are climbing quickly.
The yield on the 10-year US Treasury hit the highest level since 2011 in the midst of a massive bond sell-off Wednesday. The selloff spread across the globe on Thursday morning. ZeroHedge called the spike in yields a “monster move.”
The SchiffGold Friday Gold Wrap podcast combines a succinct summary of the week’s precious metals news coupled with thoughtful analysis. You can subscribe to the podcast on iTunes.
As expected, the Federal Reserve nudged interest rates up another 25 basis points Wednesday. The federal funds rate now stands at 2.25%.
The Fed offered up a rosy outlook for the US economy, projecting growth will continue for the next three years. The central bank also dropped the phrase, “the stance of monetary policy remains accommodative” from its statement. As an analyst told Reuters, “It does seem to potentially indicate they believe monetary policy is becoming less accommodative and getting more toward that neutral rate.”
A recent Paul Krugman New York Times column praised the success of the Keynesian macro model in the wake of the 2008 financial crisis. In his view, the Federal Reserve did exactly what was necessary – pushed interest rates to zero and launched rounds of quantitative easing to jumpstart demand. As Tom Woods and Bob Murphy put it in a recent episode of the Contra Krugman podcast, “we agree that Krugman’s model did great…if we overlook all the times it blew up in his face.”
As is typical of Keynesians, Krugman ignores the side-effects of Federal Reserve policy. It works for a while, but it perpetuates the boom-bust business cycle. Sure, the economy today seems to be booming, but there is a rotten underbelly that most everybody in the mainstream seems to be ignoring. Peter Schmidt offers a succinct breakdown of Keynesian-based Fed policy and reveals why its doomed to failure.
The SchiffGold Friday Gold Wrap podcast combines a succinct summary of the week’s precious metals news coupled with thoughtful analysis. You can subscribe to the podcast on iTunes.
If you look at past financial and economic crises, what is the common denominator?
Debt.
That’s why we talk so much about debt on these pages.
