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This is Max from UNFR for the Midas Touch Network. You know, words like unprecedented and uncharted get thrown around a lot when you cover the Trump administration. And it almost feels a little hack and a little clickbait to keep using it, especially as the socioeconomics guide. Not the most exciting topic, right? So, I'm not trying to compete with all of the absolutely insane things that are going on right now. So, please forgive the framing of this one, but we are indeed in uncharted territory with unprecedented activity in the financial markets.
In the last week of October, the plumbing of the financial system broke and it's still leaking as of the start of November. And if it gets worse, we might be headed for an epic economic meltdown. So, I'm going to break it all down to compare it with past crises and put it in context of the government shutdown, the degrading economic data, and the mounting US debt. This is the ultimate peek under the hood that the people who run this economy don't want you to see. So, let's go.
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It's been a while since we've run through macroeconomic numbers together. So, let's start big picture before we dig into the pipes that burst in the financial markets to really explain the severity of the situation. See, there's a staggering disconnect between the stock market and how the mainstream media talks about the economy and what's really going on behind the scenes at our major financial institutions and below the surface of the real economy.
So, big picture, even though some data have been delayed due to the government shutdown, there are alternative data sources and private releases that give us an idea of where things stand at the moment. And again, as we've said many times, the stock market is not the economy. So, it's important to look past what's happening with equities. For example, we know from the Challenger Gray and Christmas reporting that hiring for this holiday season is expected to be at 2009 levels, the literal peak of the global financial crisis. We've seen mass layoff announcements from IBM, Target, Amazon, UPS, Meta, Google, Skyance, Paramount, Intel. Baby boomers continue to exit the job market at a rate of 10,000 per day. So, despite the lack of data at the moment, the administration is able to claim that the unemployment rate isn't problematic, but it ignores how entry-level jobs have been decimated by our zero immigration and mass deportation policy and baby boomers leaving the workforce. So, under these circumstances, wages should be increasing steadily due to decreasing supply. Instead, wage growth among those currently employed is stagnating or declining. So, wage growth continues to trend in the wrong direction, while inflation, as you can see here, is still above 3%, which is above the Fed's 2% target. And this has many analysts beginning to wonder if 3% is the new normal. And maybe the Fed should just adjust its mandate accordingly.
And yet, this has been celebrated by the Trump administration because tariff inflation hasn't shown up in the retail sector as substantially as some thought it might, but it did show up. Well, we should be worried. The goods economy, uh, certain portions of the goods economy are collapsing right now. So, year-over-year trucking volumes, this is really the predominance of freight that moves across the United States, is down 17%. But when you look at the industrial sectors, the folks are the the freight that moves over the long haul, this is energy, automotive, housing, and manufacturing, we're down 30% year-over-year, which is very great financial crisis uh levels of concern. It's really, if you think about where we've seen inflation related to tariffs, a lot of the tariff cost has been in wholesale prices and wholesale goods and and and so it's not showing up necessarily in consumer prices, but it is showing up in those wholesale prices. And so those imports that companies are getting in raw materials is really taking a pretty, you know, a pretty big hit. So that's where the tariff inflation has been hiding in the raw materials and the industrial sectors. It's not making its way into goods, which is actually a worse sign than we originally anticipated.
See, the relative cost from tariffs isn't being passed on to the consumers because they can't afford to pass it along. They'd be trying to get blood from a stone. In the same way that crude oil can't push past resistance levels right now. I mean, we literally bombed Iran this year. We sanctioned Russia and anyone selling oil to them, and we're threatening to invade Venezuela. These are all major pro states. In any other climate, oil would be through the roof under these exogenous threats. Instead, nothing. Oil is $60 and it can't break that range. Translation is the consumer is dead.
So, how does this administration reconcile this fact? By saying that the whole point of their economic plan is some temporary pain to move past a consumer economy and toward a manufacturing economy, essentially back to the future. But manufacturing has contracted since Trump took office. Manufacturing jobs have declined and the broad-based investments into renewable energy and infrastructure under the Biden administration have been shifted to data centers, to traditional fuels, and AI infrastructure designed to support a new high-tech AI and data-driven economy, not manufacturing. Oh, and by the way, Wall Street and our government both acknowledge that this will reduce the demand for labor in the coming years.
Okay, so if we're supposed to be talking about the plumbing of the financial system, why start off with this macroeconomic view? It's because the economy is like a giant equation. It's all about inputs and outputs. And typically, we gauge the health of the economy by business cycles and judging the flows of these inputs and outputs. And the biggest input is money. After the global financial crisis and after COVID, we sent trillions of dollars into the system. Trillions. And some of it went to work in the real economy, but most of it went to cover for losses. That was especially the case after the GFC. But after COVID, the money went everywhere fast. And that's the other part of the equation. It's not just about the money. It's about the velocity of money.
See, when money is flowing, you can easily track the business cycles. It's water flowing through the pipes. So, when money stops flowing, it's like sludge in the plumbing. And eventually it backs up and it builds pressure in the pipes and that's when leaks occur. And if left unattended, that's when leaks turn to bursts.
There's a very important market that's overseen by the Federal Reserve called the repo market. Now, repo just stands for repurchase, and there are two sides of it, the repo and the reverse repo, which basically just indicates whether financial firms are buying from it or selling into it. Now, the names here can cause a little bit of confusion, but here's the best way to think about it. Every night, trades settle out from the day between buyers and sellers. And most of the major financial institutions, banking and non-bank firms, settle through clearing houses, which means it's a triparty transaction, or directly with one another, which is a bilateral transaction. Now, sometimes there's so much money changing hands that the counterparty or the clearing house that's putting up the cash will borrow money to make sure that there's enough to go around, 'cause remember, these investments and trades are highly, highly leveraged, and every night there are trillions of trillions of dollars worth of transactions that are settling out.
So, in order to create a buffer after the global financial crisis, the Federal Reserve created a new standing facility called the Standing Repo Facility. Essentially a rainy day fund with billions to sometimes hundreds of billions of dollars in it at a set rate of interest so that financial institutions kind of have a safe haven to access money. And as you can see in this chart, this facility was filled during the inflation crisis post-COVID as institutions were working out their balance sheet issues and their settlements. Today, the facility is empty. In a moment, I'm going to show you where it's all gone and where the money is invested. But this is the first important signal that we need to be aware of. The rainy day fund is bone dry.
Now, let's talk about rates for a minute because there are some misconceptions about rates in the marketplace and who sets them. Because the narrative is always that the Fed rate is a singular rate. It's the only one that matters. And is the Fed going to raise rates at the next meeting or cut them? Did the market already price that cut in? Did anyone dissent? How did the markets respond? What does it mean for borrowers? And then the conversation just kind of stops, only to be revisited the next time the FOMC gets together. But rates tell a continuous and relentless story about the nature of the economy.
For example, Treasury rates tell us how other countries feel about the way that we handle our business. So, you can see here that the Fed has been cutting rates, right? That's the horizontal blue line to where the high end of the federal funds rate today is 4%. Treasury rates, these are the instruments that we use to finance our debt, typically track pretty closely with the federal funds rate. And what we've seen in the past few weeks, is a separation in the movement of yields. Despite the Fed lowering the federal funds rate, the yields on treasuries have split across the board and moved higher. In other words, the Fed and the Treasury are officially on totally different pages. The global marketplace is hedging against the US and doesn't believe that lowering rates will have a stimulating effect on economic activity. So, that's the really big picture on rates.
Now, there's other rates all throughout the market. For example, at the consumer level, uh, credit card and auto loan rates tell us how the capitalist markets think the consumer is doing. Mortgage rates are a reflection of consumer credit, health, and income. But who sets these in reality? There are two competing narratives here. They're totally at odds with one another when it comes to who controls the rates. Because sometimes the government likes to pretend that it's completely in control of rates. At other times, it doesn't take any credit. It backs away and says, "Oh, that's the invisible hand of the marketplace."
Now, the truth is somewhere in between this. The federal funds rate, the one that everyone talks about, is, believe it or not, more of a suggestion than a fixed rate. Now, it serves as a guide for sure, or more precisely, a range. See, when the Fed sets the federal funds rate, it's not a fixed rate of borrowing. It's a range, a very small range of a quarter of a percent. This range, it's set for overnight lending between banks. That's it. It has nothing to do with you, with your auto loan, your student debt borrowing rate, or your mortgage. But the theory holds that the baseline cost of capital is set by this rate, right? It's a benchmark for the market to set expectations against.
Now, let's get even more specific about rates because with this under your belt, you'll be able to more easily spot where the leak is sprung. So, every day, banks, non-bank financial institutions, and investors track rate movements across a spectrum. The federal funds rate that we just talked about is only one of them, and it doesn't move, but for the FOMC meetings. But there's also something called the Secured Overnight Financing Rate, or SOFR, which is really important to the story today. We've also got the Reverse Repo Award Rate, or RRP, Interest on Reserve Balances, the Discount Rate, Prime Rate. So, there are others, but these are really the big ones.
Now, the federal funds rate is important. I don't want to suggest that it's not. It's a guide for the market. The prime rate is based on the federal funds rate, for example. And this is extremely important in commercial real estate and for certain business lines of credit. So, in this way, it's important in both practical terms and for optics. And when the actual rates in the banking system fall within this range, that's when the Fed comes in to say that it has complete control of the market.
So, now let's talk about SOFR. And if you grew up on Long Island like me, this might be a little confusing because that's how we pronounce this. Now, for normal people everywhere but Long Island, SOFR is the Secured Overnight Financing Rate, and it's the first sign of leaky pipes. SOFR is a composite of market rates. It's not set by anyone. It's where rates land, all of them kind of put together during the overnight trading. So, when the SOFR rate exceeds the federal funds rate, it's sometimes interpreted as a sign of stress in the market, meaning that liquidity is tight. So, funding sources, the people that are putting money into the system, are looking for a premium. So, if you're the party that's lending money to others and let's say you're not comfortable with their collateralization, you'll ask for a higher rate. That's just like real life, right? So, when this happens, large financial firms that are eligible to transact with the Federal Reserve look to borrow from the Fed instead.
So, let's look at SOFR this year. SOFR is almost always within the Fed funds range. Now, remember that the Fed has lowered the range twice in the past couple of months. So, the green line here is showing the upper limit of that range. 4 and a quarter percent in September and 4% as of October. These are the rate cuts that you hear so much about. Now, the yellow line is that composite of market rates, the SOFR rate. So, you can see on the eve of the first rate cut, SOFR briefly exceeded the upper limit, and then again in mid-October, and since the last week of October and in the beginning of November, it hasn't come back down. So, that means that the market is consistently looking for a premium. And here's where you can see the money being supplied by the Fed as a backstop. Those tall blue lines represent the repo agreements from the Fed. In other words, certain lenders weren't happy with the rates offered by the market. So, they sold securities, either mortgage-backed securities or US Treasury notes, to the Fed in return for cash. It's another thing that we'll touch on in a minute.
And I have to stress the point that this is highly, highly unusual. It happened once in 2019 and set off a global panic in bond and equity markets alike until the Fed stepped in and pumped in tens of billions of dollars into the system overnight. So, this means one of two things. Financial institutions think that their counterparties might not be as healthy as they're saying, or they don't have it. So, this has led some to note that the Fed has quote, "lost control of interest rates in the market," and that we might be on the verge of a massive liquidity crisis. Now, the real story probably lies somewhere in between. But the bottom line is that this facility isn't supposed to be used this way, and it's rarely, if ever, used outside of quarter-end periods when banks are looking to shore up their reserve requirements ahead of reporting.
So, if money is leaking out of the system, where's it all going? Well, unfortunately, the United States contracted with discount plumbers down the block instead of calling up professionals. Larry, Mo, and Curly here are driving the policy bus at the moment. So, we've got the Donald, Scott Bessant, and Steven Myron. So, Donald Trump decided to blow out our deficits by maintaining spending levels while cutting taxes on the wealthy and corporations. So, Scott Bessant, you know, the guy who ran a hedge fund that lost 90% of its value while the S&P gained 167% over the same period. And yes, I'm going to tell that story every single time I mention his name because he's such an arrogant ass who's in so far over his head. That guy, Scott Bessant, has to fund the government through Treasury auctions, but he needs to keep those rates as low as possible. Which is why Steven Meirin, the other guy in that photo, is on leave from the White House and over at the Fed now pushing the FOMC to lower rates because they think they're still in control of the market. But as we've shown, they lost control of rates, and that's why they're going higher and higher. And by the way, if you want to know who Steven Myin is and why he's so dangerous, I just did a whole expose on him on UNFR. So, check that out when you get a chance because dollars to donuts, that guy is going to be the next Fed chair. You heard it here. But I digress.
Here's where the money is going. The yellow line is that reverse repo market that we talked about, that rainy day fund plotted here against bank reserves in red and the TGA, or the Treasury General Account, in green. The TGA is the government's checking account. That's where we pay our bills out of. Bank reserves are declining and the rainy day fund is dry because the Fed and the banks are being forced, nicely, to buy our own treasuries to fill the country's checking account.
So, couple of fun facts before I bring this home. When Janet Yellen was the Fed chair, Scott Besson, the guy who lost 90% of his value in his hedge fund, criticized her for rolling over long-term debt into short-term instruments because they had a lower interest rate. And now he's doing the exact same thing to the extreme. The other fun fact is that the Federal Reserve quietly announced in the footnotes of its last memorandum that it's going to stop purchasing mortgage-backed securities and only purchase treasuries with the money that it has on hand because they want to keep demand for treasuries high and suppress the yields. That's yield curve control. We did it in the '50s and '60s, and it was a disaster.
Now, if you made it this far, you get a gold star because this is confusing and also depressing. So, let me briefly recap what's going on without the charts and the graphs and the jargon. All right, so let's go big picture. Recently, a Harvard economist named Jason Furman estimated that if you took out all of the spending into data centers that fueled growth in the first half of the year, that actual US GDP would have only been .1%. Yeah. Now, that money didn't go into your pocket. Didn't even go to the government. It just went to Wall Street. That's what's pumping up equities. Wage growth has been declining and unemployment figures have only remained stable because of a zero immigration and mass deportation policy. Subprime defaults are rising. So are bankruptcies. High-profile private credit bankruptcies revealed shaky lending practices among all of those counterparties in the financial markets that we can't see. And that's led the banks that we can see to increase rates that they're charging these firms, despite the Fed's attempt to lower interest rates by cutting the federal funds rate. This is why people are saying that the Fed has lost control of rates. Inflation is stuck above 3% despite slowing demand and slumping consumer confidence to the point that retailers have announced holiday hiring will barely meet 2009 levels. In other words, we're broke. The country is broke, and so are consumers. And the people who have all the money are starting to hoard it. The banks that have money are investing in treasuries because the deficits are increasing more than projected. And the Treasury is retiring old long-term debt with short-term debt that's a little bit cheaper. But even the short-term rates are starting to rise and creep as well because people are losing faith in us. So, this is all the equivalent of like rolling your credit card debt to a zero interest card. The debt doesn't go away. Tariffs have brought the industrial economy to a standstill. All to protect tax cuts for corporations and the wealthy.
For the Midas Touch Network, I'm Max from UNFR. You can sign up for our free weekly newsletter at unftr.com. And while you're there, check out our directory of progressive resources and activist tools. UNFTR is also my handle on Blue Sky and YouTube. So, make sure to follow and subscribe to us there as well.
Now, listen, this is a fast-moving catastrophe that we'll be following closely here on Midas Touch. So, make sure to stay abreast of any updates and leave any questions that you have for us in the comments below. And thanks again to the Midas Mighty for all of your support. And I'll catch you online.
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