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Strategies & Market Trends : ajtj's Post-Lobotomy Market Charts and Thoughts
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To: Qone0 who wrote (74688)12/14/2022 11:46:03 AM
From: Sun Tzu2 Recommendations

Recommended By
ajtj99
The Ox

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That is what I think too, but for different reasons. Everyone is debating the inflation picture. But I'd rather look at what the Fed is capable of doing rather than what they want to do.

Without a recession, at 4.5% FFR, many necessary services have to be cut. The government can play with the term structure a bit, but I don't think it is sustainable for more than 6 months. It will break the budget.

With a recession, FFR has to drop below 3.5% or it will break the budget.

Put the two together and the rates will start dropping by July and should go to 3.5% by 2024Q1.

By "breaking the budget", I mean a debt death spiral. i.e. the interest payments the government will have to make exceed the budget shortfall, leading to an acceleration of both debt issuance and the interest payment rate of growth. An accelerating rate of growth is unsustainable in any system.

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