If any proof is needed of the baleful impact on Middle Class America of the Fed's abject subservience to Wall Street, the chart below tells you all you need to know. According to REDFIN, the monthly mortgage payment in April on the median priced home is up 11.3% from last year and a staggering 70% just since April 2021.

But, no, it's not because the geniuses in the Eccles Building have allowed longer-term interest rates to partially normalize. To the contrary, the real culprit is soaring home prices, which have been fostered by the Fed's relentless suppression of interest rates and saturation of the homeownership market with cheap mortgage debt.

For want of doubt, here is the 30-year mortgage rate for the last forty years. Neither today's nominal rate (black bars) at about 7.0% or, more importantly, the inflation-adjusted rate (red bars) at 3.0% can be considered even remotely high relative to the long-term trend.

In fact, today's inflation-adjusted rates only seem high relative to the total aberration of 2021-2022 when the Fed drove real interest rates deeply into negative territory. Of course, no one who thinks rates are now too high has explained how banks and other investors in mortgage debt would be pleased to lose principal year-in-and-year out if the pandemic era monetary madness were to be made permanent.

More appropriately, the real message of this graph is that during well more than 75% of the time over the last four decades real mortgage rates were higher than they are today. Yet that did not send the housing market into turmoil or push potential homebuyers out into the snow.

Nominal and Inflation-Adjusted 30-Year Mortgage Rates, 1984 to 2023



In fact, between 1984 and 2007, the inflation-adjusted mortgage rate averaged +5.25% or 1.5X more than current levels. Yet back then both family housing sales and new units completed relative to the number of households needing shelter posted at levels far higher than during the last 12 months.

Cheap real rates consequently had a far greater impact on housing prices and speculative activity in the sector than on actual levels of housing activity.  In fact, the number of new completions per US household (black line) was 75% higher in 1984 than it was in 2023, while the level of homes sales per US household (red line) was 47% higher in 1984. But to remind, real mortgage rates in 1984 had posted at +9.5 versus and average of +2.7% in 2023.

New Home Sales And New Housing Unit Completion Per US Household, 1984 to 2023

What the Fed did stimulate in the housing sector, of course, was prices. The median home sales price (dashed blue line) of $79,900 in 1984 had risen to $425,000 by 2023, representing a whopping gain of 430%.

The clusterf*ck in the US House of Representatives this weekend is surely the final straw. The dreadful grip of the UniParty on national security policy has finally produced sheer madness in a single package. To wit:

• $95 billion of foreign aid boondoggles that do not benefit America's homeland security in the slightest.
• An extension of section 702 of FISA that wantonly expands an already egregious affront to the Fourth Amendment.
• The wanton transfer of billions of sovereign assets stolen from Russia to its enemies in Kiev.
• A national security ban on 15-second TikTok videos about dances, pranks, pets and poppycock viewed overwhelmingly by under 30-year-old Americans whose viewing habits are of zero value to the Chicoms in Beijing.

It is bad enough that there is not an iota of informed consideration behind any of this, but what is really alarming is that every single House Democrat (212) voted in favor of $61 billion for the Ukrainian Demolition Derby, while only fourteen Republicans voted against all four components of this wholesale assault on constitutional liberty and fiscal rectitude.

In this context it was the predictable histrionics of the bevy of neocon warmongers on the editorial board of the Wall Street Journal that brought home the full extent of the challenge. Namely, that the mainstream narrative in the Imperial City and among the nation's elite media is so utterly wrong-headed and morally obtuse that only the complete abandonment of the core framework of contemporary national security policy can save the day.

Accordingly, the "domino" theory needs be repudiated once and for all. Likewise, the Washington-Jefferson doctrine of "no entangling alliances" needs be revived in place of the vestigial cold war notion that informs Washington's current destructive and bankrupting policies. That is to say, the obsolete notion that America's homeland security depends upon a worldwide system of alliances, bases and military power projection capabilities that enable Washington to function as the great Global Hegemon, who is ready, willing and able to intervene in virtually any spate that erupts among the 8 billion peoples of the planet.

The fourteen stalwarts listed below essentially said, no dice to these tired, dangerous, costly and risible formulations: Neither Russia nor China pose even a remote military threat to the American homeland, while proxy wars and economic sanctions against "adversaries" demonized by the Deep State actually undermine domestic liberty and prosperity for no justifiable reason of homeland security at all.

With respect to the latter, for instance, there is no real reason for the sweeping multi-hundred billion cost to the American economy of sanctions and trade restrictions on China, Iran or Russia. And, similarly, there are no security threats in the world today that even remotely justify the national security state's intrusion into the rights and privacies of American citizens.

Still, the crypto intellectuals at the WSJ trotted out Hitler, Tojo and the "isolationist" epithet as if these references prove anything at all, when, in fact, none have any real relevance to the world of today. There are simply no industrial state tyrants on the march anywhere on the global horizon that resemble even the apparent facts of the 1930s, let alone the actual historical realities of the matter.

When it comes to Keynesian central banking it might well be said that if you paint by the numbers you are stuck with the brush. That is to say, the Fed has turned its 2.00% target into a economic holy grail and therefore does not dare risk a rebound of the 40-year high inflationary pressures that remain directly in the rearview mirror.

Yes, the inflation gauges have cooled considerably since the 9% CPI peak of June 2022, but the Fed is not yet remotely out of the woods. In fact, when the inflation tide is viewed through the more stable and reliable lens of the 16% trimmed mean CPI, which peaked at a somewhat lower 7.2% level in 2022, the Y/Y gain at 3.6% in March was actually up from February and was still barely halfway back to the sacrosanct 2.00% goal.

Indeed, the annualized six-month rate of change in the trimmed mean CPI has rebounded to 3.8%, while in March the three-month annualized gain posted at 4.4%. That is, inflationary pressures may well be re-accelerating.

So, as much as the boys and girls on Wall Street insist on getting their juice, the paint-by-the-numbers crowd in the Eccles Building is not nearly there yet. Not by a long shot.

Y/Y Change In the 16% Trimmed Mean CPI, April 2020 to March 2024

For avoidance of doubt, just recall the horrific charts of 1967 to 1982. Back then the good folks in charge of the Fed were not even explicitly in the Greenspanian monetary central planning business, but still had to generate four recessions during that span in order to get the inflation genie back in the jar.

To be sure, the twenty-something traders on Wall Street, who are braying ever more insistently for initiation of the next rate cut cycle, undoubtedly confuse the 1970s with the 1790s. It's all an ancient blur in their minds, apparently.

The graybeards working toward their pensions in the Eccles Building, however, are not quite so insouciant. They recall the triple peak of inflation from that era, and undoubtedly still have the chart on their dashboards. The thundering central bank failure implicit in three inflationary surges (red bars) and four recessionary contractions (white areas) in just over a decade nearly destroyed the Fed's open-ended remit as the nation's unelected monetary politburo, to say nothing of its credibility on both ends of the Acela Corridor.

Therefore, the current gang in charge is not about to flinch on their "higher for longer" call until they can see cleanly the whites of those 2.00% inflationary eyes.

Speaker Johnson’s ignominious betrayal of fiscal sanity might well be the death knell for the GOP. He is apparently risking his speakership on behalf of $95 billion of foreign aid boondoggles that Uncle Sam cannot remotely afford, and which actually provide zero benefit to the homeland security of America. And we do mean zero, as […]

In Part 3 we suggested that a federal tax policy targeted on generating revenue equal to 19.5% of GDP could produce receipts of about $67.0 trillion over the next decade or about $4.4 trillion more than the existing CBO baseline estimate of $62.6 trillion.

The latter, of course, reflects current tax law, which would extract about 17.8% of national income in Federal taxes over the period. So the question recurs: How can you obtain an extra 1.7% of GDP in taxes each year without causing undue hardships, unfairness and roadblocks to private sector investment, incentives and growth?

The honest answer is you probably can't because all taxes---especially from current high levels---cause hardships, inequities and disincentives. But the $140 trillion of public debt by mid-century that America is careening toward would have far worse adverse effects---so the practical challenge is to find the most economically neutral way possible to achieve that objective.

In that context, we focus on the yawning gap between what the Federal personal and corporate income taxes would generate on an economically neutral basis, and what the current loophole-ridden and interest group-corrupted tax code actually generates.  That is to say, the top rates on personal and corporate income are 43% and 21%, respectively, but in combination these two tax systems generated tax revenues equal to just 9.7% of national income in 2023.

Accordingly, on a 10-year forward basis here is the current baseline level of receipts, and the impact of reaching the 19.5% of GDP revenue target by closing loopholes and broadening the taxable income base.

Cumulative Federal Receipts, 2025 to 2034:

• CBO estimate of individual income taxes: $33.0 trillion.
• CBO estimate of corporate income taxes: $5.1 trillion.
• Total Federal Income Taxes: $38.1 trillion.
• Incremental receipts from 19.5% target: +$4.4 trillion.
• Percent increase with target income tax collections: 11.5%.

Needless to say, an 11.5% increase in Federal income tax collections is nothing to sneeze about. Yet when you examine the result of the US Treasury's latest analysis of so-called Federal "tax expenditure", which are defined as the revenue loss from tax code deviations from economic neutrality, it is evident that there is substantial opportunity to broaden the Federal tax base while retaining the current marginal rate structure.

Specifically, the Treasury analysis for FY 2023 to 2034 identifies tax expenditures of $21.4 trillion over the period. During the same decade interval, the CBO baseline estimate for individual and corporate income tax collations was $34.7 trillion, meaning that the implied economically neutral tax base would have generated $56.1 trillion, and that, taken as a whole, current tax expenditures and loopholes reduce the Federal tax collections by 38%.

Washington has descended so deep into chronic fiscal profligacy—nay, wanton recklessness—that there is only one route back to fiscal sanity. To wit, new political leaders not under the pall of UniParty madness must seriously target a balanced budget a few years down the road, determine the maximum tolerable, sustainable and equitable revenue burden on national […]

The CBO projection conveyed in Part 1 indicating that America’s publicly-held debt will reach $140 trillion and 166% of GDP by 2054 seems far-fetched on its face. But you only need to compare this 30-year lookback to 1994-2024 with CBO’s latest 30-year forward projection to realize that this staggering debt estimate is probably well under […]

The 2024 election contest between Biden and Trump is farcical not just because it pits the mentally lame against the egomaniacally blind. The more compelling absurdity is that America is now hurtling headlong into an existential fiscal crisis, but neither candidate ever mentions this clear and present danger, let alone proposes even a semblance of […]

David Stockman, a former Congressman, economic policymaker, and financier, recently discussed America’s fiscal and monetary challenges with Adam Taggart. He provides a detailed understanding of how we arrived at our current economic situation. After decades of profligacy, where our debt has increased 100 times since 1970 while GDP grew only 25 times, Stockman believes we’ve reached a fiscal […]