Take a look at the FVX (5yr Treasury Yield) and you see a materially-more-frightening thing. Yields have backed up from 0.7% to 0.97%. Sounds trivial. It’s not — it’s a huge move, close to 40% on yield since the end of January!
This matters because the Federal Government’s deficit spending in February is what has been driving the “improving” economic numbers, just as it has been for the last three years. This is a pincer move; while yields have to normalize if and when they start to move in this direction that move will also choke off federal deficit spending capacity.
The Depression featured this sort of attempt at “repression” by The Fed and government and it was unsuccessful. It looked successful for a while, but eventually the math caught up with them and we slumped back into the morass. Our “exit” was war; we blew up all of our industrial competitor’s output capacity and by doing so rejiggered demand. That’s a rather bleak way of looking at what was “death by all forms” for the common man, but from an economic perspective that’s what happened. But “war as a solution” since that time hasn’t “worked” (and in fact can’t) since small-ball wars run into the broken-window fallacy; you can’t “win” by breaking windows as the economic damage from a war exceeds the benefit. For war to be a “winning” strategy you have to literally flatten your economic competitors so that even with the economic damage you wind up with a net benefit.
Wall cloud indeed.