Here we go again with Bidenflation?
Despite the Fed jacking up interest rates faster than at any time since the inflation-crushing Reagan-Volcker hikes of 1981 — and sucking liquidity out of the economy via quantitative tightening (QT) — inflation remains stubbornly above the Fed's 2% target... and it could come roaring back thanks to growing cracks in the foundation of Bidenomics.
"It's a slow-moving train wreck," Bear Traps Report founder Larry McDonald told Fox Business on Tuesday about the country's commercial real estate markets. As Longtime Sharp VodkaPundit Readers™ already know, the combination of higher interest rates, free-range vagrant drug addicts, and work-from-home policies have eviscerated downtowns in America's bluest big cities.
Nearly vacant office buildings — the vacancy rate in downtown San Francisco is over 35% (!!!) — aren't generating enough revenue for the owners to pay their mortgages, with "close to $2 trillion of maturities in the commercial real estate space," according to McDonald, and another $2 trillion at risk in "high-yield leverage loans and investment grade bonds."
All those emptying office towers are "worth a fraction of what the original values were when these loans were made. And you're going to see massive defaults," McDonald added. The only way out, he said, is "aggressive rate cuts" from the Fed.
Already, the Fed has "capitulated on tight monetary policy," with QT "effectively over" due to a liquidity crisis in the banking sector — the same banks that might soon face a trillion or more dollars in commercial real estate defaults. As my colleague (and occasional "Five O'Clock Somewhere" guest) Ed Morrissey noted last week, "The Fed may have to let inflation run wild again to hedge against bank instability in the short run."
Just when wages were finally starting to catch up with Biden's first round of inflation, too.
If there's any good news to be found in this mess — and you really have to squint to see it — it's that the job market seems to be drying up already. "A very careful look at the labor market now will suggest that hiring has just ground to a halt," Brevan Howard's chief economist Jason Cummins told Bloomberg's "Odd Lots" podcast earlier this week. The only reason, he said, the unemployment rate didn't jump to 4% last month is that the labor participation rate — the number of people working or actively looking for work — dropped again "by a huge amount."
If you aren't looking for work, the government doesn't count you as unemployed. That helps keep Ms. Rosy Scenario employed at the Bureau of Labor Statistics.
"So," I can hear you ask me, "How the hell is a weakening labor market good news?"
Well, if we're already entering a recession, the decrease in demand ought to help tame inflation. So maybe we won't have to sit through a $24 matinee showing of "Bidenflation II: Fiscal Boogaloo."
Look, I told you that you'd really need to squint to see the good news.
If the Fed can't engineer what Cummins called the "Sully Sullenberger soft landing of all soft landings," then we might be looking at either a nasty recession (with the job losses we didn't experience during the mild 2022 recession) or the roaring return of Bidenflation.
Or both.
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