US FED STARTS TAPERING

The Federal Reserve said today it will begin tapering the pace of its asset purchases later in November. On a monthly basis, the reduction will see $10 billion less in Treasurys and $5 billion less in mortgage-backed securities. Once the tapering has reached zero the fed will have to consider employment and inflation again. Here in Canada the Bank of Canada has already stop buying bonds.

The process will see reductions of $15 billion each month — $10 billion in Treasury’s and $5 billion in mortgage-backed securities – from the current $120 billion a month that the Fed is buying. Tapering will be done in 8 months when the quativew easing is concluded.

There also was only a slight change to Fed’s view on inflation. The post-meeting statement kept the word “transitory” to describe price increases that are running at a 30-year high, though it qualified the term somewhat by saying pressures are “expected to” be temporary. Chairman Jerome Powell said he expects conditions pushing inflation to last “well into next year.′

The only way to control inflation is to sharply raise interest rates which will move cash into bonds and other investments. At the same time housing prices would fall rapidly. Inflation is also driven by congressional tax cuts and chromic deficit spending. Nobody has unlimited nominal or real spending power.

The slow immunization rates in America have hobbled the reopening of bars and restaurants. Resistance to immunization has resulted in hundreds of thousands of needless deaths. COVID-19 has killed millions and millions making it the worst disaster to befall the world. COVID-19 has done more damage than wars by far. Even the Nazi gas chambers came up short compared to COVID-19.

Americans have an average credit card balance of $5,525. While many Americans are getting the their finances back in order following the COVID-19 saga, it will be several more years before more are back to work.

U.S. adults with at least one credit card, 55% of consumers carry a monthly balance. Of those, 46% owe over $5,000, 26% owe more than $15,000, and 18% are at least $20,000 in the red.  Your webmaster has a zero balance and I urge anyone in the red to pay more than the minimum to accelerate financial recovery.

The average credit score in the U.S. is at an all-time high of 711 but each state varies considerably. The lowest credit scores in America can be found in the South: Mississippi (675), Louisiana (684) and Alabama (686). Meanwhile, Minnesota (739) and Wisconsin (732) have the highest average score among U.S. states. Your webmaster has a much higher credit score.

About 1 in 5 American adults either have no credit history (“credit invisible”) or are unscorable. As a result, these individuals will have difficulty obtaining new lines of credit. These people need to at least have a bank account so that tax refunds and paychecks can be deposited etc.

The following states are considered to have 40% subprime persons:

  • Alabama
  • Arkansas
  • Georgia
  • Kentucky
  • Louisiana
  • Mississippi
  • Nevada
  • New Mexico
  • Oklahoma
  • South Carolina
  • Tennessee
  • Texas
  • West Virginia

Recall the days of alt-A mortgages and the amount of wallpaper shovelled into system. The mess 20 years later still has a lot more to be cleaned up.