If someone asks you what happened in 2009, the answer is simple - two things. There was a huge credit and liquidity crunch, and then there was Quantitative Easing. The last is the Fed's equivalent of band-aiding a zombied and ponzied corpse, better known as the US economy. It worked for a while, but now the zombie is about to go back into critical, followed by comatose, and lastly, undead (and 401(k)-depleting) condition. In 2009, total supply of all USD denominated fixed income, net of maturities, declined by $300 billion from $2.05 trillion to $1.75 trillion. This makes sense: the abovementioned crunches stopped the flow of credit from January until well into April, and generally firms were unwilling to demonstrate to the market how clothless they are by hitting the capital markets until well into Q2 if not Q3. What happened was a move so drastic by the Fed, that into November, the worst of the worst High Yield names were freely upsizing dividend recap deals (see CCU) - the very same greed and stupidity that brought us here.... Back to the math... And here is the kicker. Accounting for securities purchased by the Fed, which effectively made the market in the Treasury, the agency and MBS arenas, but also served to "drain duration" from the broader US$ fixed income market, the stunning result is that net issuance in 2009 was only $200 billion. Take a second to digest that. And while you are lamenting the death of private debt markets, here is precisely what the Fed, the Treasury, and all bank CEOs are doing all their best to keep hidden until they are safely on their private jets heading toward warmer climes: in 2010, the total estimated net issuance across all US$ denominated fixed income classes is expected to increase by 27%, from $1.75 trillion to $2.22 trillion. The culprit: Treasury issuance to keep funding an impossible budget. And, yes, we use the term impossible in its most technical sense.... Out of the $2.22 trillion in expected 2010 issuance, $200 billion will be absorbed by the Fed while QE continues through March. Then the US is on its own: $2.06 trillion will have to find non-Fed originating demand. To sum up: $200 billion in 2009; $2.1 trillion in 2010. Good luck.
In 2009, total supply of all USD denominated fixed income, net of maturities, declined by $300 billion from $2.05 trillion to $1.75 trillion. This makes sense: the abovementioned crunches stopped the flow of credit from January until well into April, and generally firms were unwilling to demonstrate to the market how clothless they are by hitting the capital markets until well into Q2 if not Q3. What happened was a move so drastic by the Fed, that into November, the worst of the worst High Yield names were freely upsizing dividend recap deals (see CCU) - the very same greed and stupidity that brought us here....
Back to the math... And here is the kicker. Accounting for securities purchased by the Fed, which effectively made the market in the Treasury, the agency and MBS arenas, but also served to "drain duration" from the broader US$ fixed income market, the stunning result is that net issuance in 2009 was only $200 billion. Take a second to digest that.
And while you are lamenting the death of private debt markets, here is precisely what the Fed, the Treasury, and all bank CEOs are doing all their best to keep hidden until they are safely on their private jets heading toward warmer climes: in 2010, the total estimated net issuance across all US$ denominated fixed income classes is expected to increase by 27%, from $1.75 trillion to $2.22 trillion. The culprit: Treasury issuance to keep funding an impossible budget. And, yes, we use the term impossible in its most technical sense....
Out of the $2.22 trillion in expected 2010 issuance, $200 billion will be absorbed by the Fed while QE continues through March. Then the US is on its own: $2.06 trillion will have to find non-Fed originating demand. To sum up: $200 billion in 2009; $2.1 trillion in 2010. Good luck.
One more thing from the same link: Now everyone knows that the average maturity of the UST curve has become a big problem for Tim Geithner: nearly 40% of all marketable debt matures within a year (a percentage that has kept on growing). In fact, the Treasury provided guidance in its November 2009 refunding, in which it stated that it intends "to focus on increasing the average maturity" of its debt after relying heavily on Bill issuance in H2. Once again, we wish Tim the best of luck.
Now everyone knows that the average maturity of the UST curve has become a big problem for Tim Geithner: nearly 40% of all marketable debt matures within a year (a percentage that has kept on growing). In fact, the Treasury provided guidance in its November 2009 refunding, in which it stated that it intends "to focus on increasing the average maturity" of its debt after relying heavily on Bill issuance in H2. Once again, we wish Tim the best of luck.
What does it mean to ME? Hyperinflation? Run on the banks? Grocery stores closing down? People mugging me while I'm on my way to campus? What?! In the end, might makes right. Nothing has changed since the caveman.
Food costs will rise, at first due to the increased cost of petroleum based fertilizers and fuels, and later the methods that will evolve to replace current techniques will be more labor intensive and cost more. But this will have the advantage of providing more employment.
If you have retirement income, disability income, unemployment benefits or welfare these will all come under pressure unless real recovery occurs, as tax revenues will remain low while expenses increase. I really don't know. A lot of normal economic functioning is an ongoing confidence game, and that confidence has taken a hit and is likely to take more and bigger hits. Were the Fed to simply step into the gap and print money on a trillion dollar scale so social security and other obligations can be met, including ongoing foreign wars, I can see that being inflationary, but others might argue.
If economic activity continues to drop down to the minimum possible for survival for most folks, prices could continue to drop an we could go into a debt-deflation spiral. Very bad. The 30s showed that depression can be accompanied by currency devaluation, which we effectively did in the 30s, going off the gold standard and withdrawing gold coins from circulation, and again in the early 70s when the USA withdrew any gold or silver backing for its currency and let the dollar float.
In a deflationary depression, cash is king, as the price of goods declines, so your cash buys more. But with the miracles of modern economics we might find ourselves with a depreciating currency and collapsing asset prices simultaneously. Hard to know where to hide or even if you can.
The State of California is in serious fiscal distress and has already raised the fees at the UC and CSU systems significantly. That could result in fewer students for you to tutor. It is the State of California that is on the hook for retirements for the people who have Calpers, and the state had to pony up an additional few billion this year, as Calper's portfoolio declined by >30% last year this time and some of it was in oil futures that collapsed in July of '08, etc. All private pensions are in similar straits.
Just consider that you have a seat at The Resturant At The End Of The Universe and are getting to watch others disintegrate while hoping for someone to get working the time machine that will take you back well before the end arrives for you. But you know how it is with time machines. Just when you need one the most..... As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Interesting thing about tutoring. I draw upon three colleges/universities for students: Sac State, Sac City, and American River. A reasonable estimate of the student population taking a chemistry course in any semester is 2000, and I only need 10 - 15 students per semester to fill all of my time. Plus these people think they have futures in "health care" so I'm looked on as a good investment.
Thank You! In the end, might makes right. Nothing has changed since the caveman.
Just consider that you have a seat at The Resturant At The End Of The Universe and are getting to watch others disintegrate while hoping for someone to get working the time machine that will take you back well before the end arrives for you. But you know how it is with time machines. Just when you need one the most.....
I was just doing other things and this final statement of yours came to mind. And I realized that I may be here to answer the question, "If a species has the ability to harness nuclear power/weapons and avoids blowing itself up, is it in the clear? Will it develop into a responsible species? Or in this case, will it destroy itself by destroying its biosphere?" Now that would be ironic. Dodge the nuclear bullet only to succumb to greed/corruption.
And that time machine? I have one and it doesn't depend upon anything other than my body ceasing to function. Then what? Just waiting to find out. In the end, might makes right. Nothing has changed since the caveman.
