Gallatoshi on Nostr: THE GOLDILOCKS ENIGMA "The Goldilocks Enigma is the idea that everything in the ...
THE GOLDILOCKS ENIGMA
"The Goldilocks Enigma is the idea that everything in the universe is just right for life, like the porridge in the fairy tale." -- Paul Davies
Imagine that you're speeding down a winding highway.
On one side is a cliff that descends into a rocky river bed. But buffeting the other side is an icy lake.
As your car hits the black ice and begins to fishtail out of control, the steering wheel spins in your hands.
Your instinct is to hit the brakes. But what if it was better to hit the gas?
That's the dilemma our central bankers are in right now.
Because the U.S. Federal Debt is speeding towards $36 trillion. With annual interest expense set to exceed $1.2 trillion this year. More than is spent on national defense.
What's more, there are now $219 trillion in unfunded liabilities. Those come in the form of social security and medicare. Promises made, but with no money set aside to pay for them.
Folks, raising rates is like applying brakes on the economy. Because it increases the cost of servicing the existing and growing debt.
But hitting the brakes too hard could send the bond market into a deflationary fishtail. And result in a debt driven collapse. Over the cliff.
But leaving your foot on the gas too long causes the cost of money to go down. Things get more expensive as more money chases the same, or fewer goods and services. Which runs the risk of inflation, or even hyperinflation. The icy lake.
So what will they do?
We already know the answer. Central bankers will choose the gas pedal every time. Damn the torpedos. Sacrifice the savers and the poor. Let the next guy deal with it.
And it's the same dilemma for central banks all over the world. To wit, CIBC's chief economist thinks that the BOC is on the verge of a "Jumbo Rate Cut".
“It is time to declare victory in the battle against inflation and get the economy moving again.” Avery Shenfeld, said. “There’s no reason not to speed up the process of getting interest rates down.”
That was Batman. Then Robin chimed in with this dovish ditty:
"Markets are underestimating how much the BoC is going to cut rates" said Benjamin Tal. Benny is CIBC's deputy chief practitioner of the dismal science. He thinks that our Money Printer in Chief could drop the policy rate by as much as 50 beeps at the next meeting on Oct 23rd. (That's banker speak for half a point).
He thinks the policy rate could hit 2.25% by the end of 2025. That's a lot of gas.
You see, there's something called the neutral rate. Not too hot, not too cold. Above the neutral rate, interest rates are restrictive. Below it, rates are accommodative. And according to Benny, we're still well above that Goldilocks rate.
What do our central banksters think? Tiff & Co. estimate the neutral rate to be between 2.25% and 3.25%.
Think of it this way. You're approaching a curve in the road where the speed limit goes from 100 down to 60. As you enter the curve with your foot on the brakes, you decelerate. But before you know it, you're doing 45.
The propellerheads think it's time to remove the brakes and hit the gas. Because it's in everybody's interest to cut rates. Right?
Not so fast. Dropping interest rates alleviates the immediate problem of debt service. It inflates asset prices. But it adds to the long term debt problem. It doesn't solve anything. It just kicks the can down the road.
Plus, unintended consequences exist in the real world. Too much gas and you get higher food, energy and housing costs. And you rob savers of their purchasing power.
It's the next generation that pays the brunt of the costs. In the form of higher house prices, reduced benefits and delayed retirement.
In real life, it's like the three bears eat the three little pigs and then join up with the big bad wolf. Then come back and eat Goldilocks and Little Red Riding Hood.
Pick your parable. And your poison.
Either way, there’s no such thing as a fairy tail ending.
#BTC
"The Goldilocks Enigma is the idea that everything in the universe is just right for life, like the porridge in the fairy tale." -- Paul Davies
Imagine that you're speeding down a winding highway.
On one side is a cliff that descends into a rocky river bed. But buffeting the other side is an icy lake.
As your car hits the black ice and begins to fishtail out of control, the steering wheel spins in your hands.
Your instinct is to hit the brakes. But what if it was better to hit the gas?
That's the dilemma our central bankers are in right now.
Because the U.S. Federal Debt is speeding towards $36 trillion. With annual interest expense set to exceed $1.2 trillion this year. More than is spent on national defense.
What's more, there are now $219 trillion in unfunded liabilities. Those come in the form of social security and medicare. Promises made, but with no money set aside to pay for them.
Folks, raising rates is like applying brakes on the economy. Because it increases the cost of servicing the existing and growing debt.
But hitting the brakes too hard could send the bond market into a deflationary fishtail. And result in a debt driven collapse. Over the cliff.
But leaving your foot on the gas too long causes the cost of money to go down. Things get more expensive as more money chases the same, or fewer goods and services. Which runs the risk of inflation, or even hyperinflation. The icy lake.
So what will they do?
We already know the answer. Central bankers will choose the gas pedal every time. Damn the torpedos. Sacrifice the savers and the poor. Let the next guy deal with it.
And it's the same dilemma for central banks all over the world. To wit, CIBC's chief economist thinks that the BOC is on the verge of a "Jumbo Rate Cut".
“It is time to declare victory in the battle against inflation and get the economy moving again.” Avery Shenfeld, said. “There’s no reason not to speed up the process of getting interest rates down.”
That was Batman. Then Robin chimed in with this dovish ditty:
"Markets are underestimating how much the BoC is going to cut rates" said Benjamin Tal. Benny is CIBC's deputy chief practitioner of the dismal science. He thinks that our Money Printer in Chief could drop the policy rate by as much as 50 beeps at the next meeting on Oct 23rd. (That's banker speak for half a point).
He thinks the policy rate could hit 2.25% by the end of 2025. That's a lot of gas.
You see, there's something called the neutral rate. Not too hot, not too cold. Above the neutral rate, interest rates are restrictive. Below it, rates are accommodative. And according to Benny, we're still well above that Goldilocks rate.
What do our central banksters think? Tiff & Co. estimate the neutral rate to be between 2.25% and 3.25%.
Think of it this way. You're approaching a curve in the road where the speed limit goes from 100 down to 60. As you enter the curve with your foot on the brakes, you decelerate. But before you know it, you're doing 45.
The propellerheads think it's time to remove the brakes and hit the gas. Because it's in everybody's interest to cut rates. Right?
Not so fast. Dropping interest rates alleviates the immediate problem of debt service. It inflates asset prices. But it adds to the long term debt problem. It doesn't solve anything. It just kicks the can down the road.
Plus, unintended consequences exist in the real world. Too much gas and you get higher food, energy and housing costs. And you rob savers of their purchasing power.
It's the next generation that pays the brunt of the costs. In the form of higher house prices, reduced benefits and delayed retirement.
In real life, it's like the three bears eat the three little pigs and then join up with the big bad wolf. Then come back and eat Goldilocks and Little Red Riding Hood.
Pick your parable. And your poison.
Either way, there’s no such thing as a fairy tail ending.
#BTC