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No Soft Landing: How U.S. Debt, Housing And Global Imbalances Collide
(MENAFN- The Rio Times) Key Points
The Fed is cutting short-term rates while 10-year yields stay near 4.2%, signalling a clash between central-bank optimism and bond-market scepticism.
A housing boom quietly fuelled by mass immigration and easy credit is rolling over, deepening affordability problems and a generational split over who should bear the pain.
China's export push, Japan's currency dilemma and the remonetisation of gold point to the late stages of a global debt cycle, not a tidy US soft landing.
(Analysis) The Federal Reserve is well into a new easing cycle. Markets expect a third straight 25-basis-point cut this week, with futures pricing the move at close to 90% probability.
Yet the 10-year Treasury yield still sits around 4.2%, higher than when the cuts began in September. It is the sharpest disconnect between Fed policy and the long end of the curve since the early 1990s, and it raises a blunt question: does the bond market believe Washington's story on growth and inflation?
Treasury Secretary Scott Bessent talks of real GDP growing near 3%, and many strategists present 4% yields as a simple return to pre-2008 normality. A more cautious camp argues that markets are overestimating the strength of the cycle.
In their view, a global slowdown is already in motion, and once weaker data really bite, long yields will fall sharply, setting up a recovery perhaps 18 months later – but only after a painful repricing in credit and housing.
Overlaying this are anxieties about credibility and fiscal arithmetic. Critics warn that the Fed is cutting with inflation still above target, while talk of“fiscal dominance” has gone mainstream: large, persistent deficits that keep yields elevated regardless of central-bank rhetoric.
Many market veterans believe that if long rates back up too far, the Fed will be pushed back into large-scale bond buying and, for the first time, explicit yield-curve control to cap longer yields.
Limits on High Real Rates Emerge
In a system built on leverage and political aversion to hard choices, the room for genuinely high real rates looks limited. Nowhere are these tensions more visible than in housing.
For years, official statistics put the number of illegal immigrants around 12 million; some analysts argue the true figure is closer to 20 million.
They claim deficit-financed programmes and lenient border enforcement quietly boosted demand for rentals and starter homes, with federal mortgage schemes in some cases extending credit beyond the usual citizen base.
That invisible demand helped prop up prices in many markets and confounded recession forecasts. That support is now fading. Border crossings are being curtailed and alleged fraud in support schemes is under scrutiny.
Shelter costs make up roughly 36% of the US consumer price index. New-tenant rents are falling in many cities, and those declines feed gradually into broader rent measures and headline inflation.
Housing itself accounts for about 20% of US consumption. Once it rolls over decisively, inflation can fall quickly, just as it did after the 2008 crisis.
Construction data suggest that turn is under way. New building permits peaked in 2022 and have been declining since. A huge multifamily boom – the largest since the 1970s – kept cranes busy and payrolls strong, but those projects depend on robust rental demand.
As that demand cools, large complexes face refinancing risk and smaller investors are discovering that rents no longer cover mortgages, taxes and insurance.
Owners of second and third homes who once counted on easy gains are now running monthly losses. For younger households priced out of ownership, a correction looks overdue. For older, asset-rich Americans, it threatens their main store of wealth.
Behind this sits a credit system that has quietly reshaped itself. Global private credit has swollen beyond $2 trillion, larger than the entire US high-yield bond market, but sits inside opaque funds with limited liquidity and almost no daily pricing.
Years of Easy Money, Inflated Asset Prices and Improvised Fixes
Recent blow-ups in specialist lenders and rising redemption requests hint at the start of a“Jenga tower” phase, where stress in one corner forces lenders everywhere to reassess risk.
On the household side, credit-card delinquencies are at their highest level in more than a decade, auto-loan arrears are climbing, and many analysts expect mortgage defaults to rise next year as savings run down.
The political consequences are already visible. Years of easy money, inflated asset prices and improvised fixes – from vast deficits to floated 50-year mortgage ideas – have mainly shielded older owners of property and financial assets.
Younger workers see unaffordable homes, hiring freezes and a job market where recent graduates sit on the sidelines while corporations blame“AI” for cost cuts that often look more like belt-tightening than innovation.
That frustration is feeding national-populist movements across the developed world, as voters who care more about results than ideological labels swing against incumbents and the policy mix that favoured asset holders.
In the background, classic havens are quietly repricing the risk of a sovereign-debt endgame. Gold has risen about 20% since September, enough for the Bank for International Settlements to call it“speculative.”
Yet Basel III rules now allow banks to treat gold as top-tier capital, and central banks – particularly in emerging powers such as China – have been adding to their reserves.
Gold the Insurance Policy
For many investors, gold is no longer just another commodity but an insurance policy against an overstretched global debt system. China and Japan add powerful external shocks to this domestic picture.
China's annual trade surplus has pushed above $1 trillion, with exports to the United States falling and shipments to Europe and the global south rising.
Critics see this not as strength but as a symptom of internal stagnation and demographic decline, and a source of deflation exported to already stretched consumer economies.
Japan's central bank, meanwhile, must choose between defending the yen and preserving a decades-old carry trade that has lubricated global risk-taking.
A firm defence of the currency could force Tokyo to sell US Treasuries, triggering a bout of bond-market stress before long-duration assets rally on slower US growth.
Taken together, these trends do not point to a neat soft landing, but to a system oscillating between deflation scares and new waves of money printing.
As deflationary pressure from China, a housing downturn and a tightening credit cycle build, governments are likely to answer with even larger deficits and fresh monetary expansion, setting up the next inflationary phase.
For ordinary savers, the cautious playbook is simple: hold more cash as dry powder, reduce leverage where possible – especially in property – and protect their position in the labour market. Policymakers can delay the cycle with immigration shocks and easy credit. They cannot suspend it forever.
The Fed is cutting short-term rates while 10-year yields stay near 4.2%, signalling a clash between central-bank optimism and bond-market scepticism.
A housing boom quietly fuelled by mass immigration and easy credit is rolling over, deepening affordability problems and a generational split over who should bear the pain.
China's export push, Japan's currency dilemma and the remonetisation of gold point to the late stages of a global debt cycle, not a tidy US soft landing.
(Analysis) The Federal Reserve is well into a new easing cycle. Markets expect a third straight 25-basis-point cut this week, with futures pricing the move at close to 90% probability.
Yet the 10-year Treasury yield still sits around 4.2%, higher than when the cuts began in September. It is the sharpest disconnect between Fed policy and the long end of the curve since the early 1990s, and it raises a blunt question: does the bond market believe Washington's story on growth and inflation?
Treasury Secretary Scott Bessent talks of real GDP growing near 3%, and many strategists present 4% yields as a simple return to pre-2008 normality. A more cautious camp argues that markets are overestimating the strength of the cycle.
In their view, a global slowdown is already in motion, and once weaker data really bite, long yields will fall sharply, setting up a recovery perhaps 18 months later – but only after a painful repricing in credit and housing.
Overlaying this are anxieties about credibility and fiscal arithmetic. Critics warn that the Fed is cutting with inflation still above target, while talk of“fiscal dominance” has gone mainstream: large, persistent deficits that keep yields elevated regardless of central-bank rhetoric.
Many market veterans believe that if long rates back up too far, the Fed will be pushed back into large-scale bond buying and, for the first time, explicit yield-curve control to cap longer yields.
Limits on High Real Rates Emerge
In a system built on leverage and political aversion to hard choices, the room for genuinely high real rates looks limited. Nowhere are these tensions more visible than in housing.
For years, official statistics put the number of illegal immigrants around 12 million; some analysts argue the true figure is closer to 20 million.
They claim deficit-financed programmes and lenient border enforcement quietly boosted demand for rentals and starter homes, with federal mortgage schemes in some cases extending credit beyond the usual citizen base.
That invisible demand helped prop up prices in many markets and confounded recession forecasts. That support is now fading. Border crossings are being curtailed and alleged fraud in support schemes is under scrutiny.
Shelter costs make up roughly 36% of the US consumer price index. New-tenant rents are falling in many cities, and those declines feed gradually into broader rent measures and headline inflation.
Housing itself accounts for about 20% of US consumption. Once it rolls over decisively, inflation can fall quickly, just as it did after the 2008 crisis.
Construction data suggest that turn is under way. New building permits peaked in 2022 and have been declining since. A huge multifamily boom – the largest since the 1970s – kept cranes busy and payrolls strong, but those projects depend on robust rental demand.
As that demand cools, large complexes face refinancing risk and smaller investors are discovering that rents no longer cover mortgages, taxes and insurance.
Owners of second and third homes who once counted on easy gains are now running monthly losses. For younger households priced out of ownership, a correction looks overdue. For older, asset-rich Americans, it threatens their main store of wealth.
Behind this sits a credit system that has quietly reshaped itself. Global private credit has swollen beyond $2 trillion, larger than the entire US high-yield bond market, but sits inside opaque funds with limited liquidity and almost no daily pricing.
Years of Easy Money, Inflated Asset Prices and Improvised Fixes
Recent blow-ups in specialist lenders and rising redemption requests hint at the start of a“Jenga tower” phase, where stress in one corner forces lenders everywhere to reassess risk.
On the household side, credit-card delinquencies are at their highest level in more than a decade, auto-loan arrears are climbing, and many analysts expect mortgage defaults to rise next year as savings run down.
The political consequences are already visible. Years of easy money, inflated asset prices and improvised fixes – from vast deficits to floated 50-year mortgage ideas – have mainly shielded older owners of property and financial assets.
Younger workers see unaffordable homes, hiring freezes and a job market where recent graduates sit on the sidelines while corporations blame“AI” for cost cuts that often look more like belt-tightening than innovation.
That frustration is feeding national-populist movements across the developed world, as voters who care more about results than ideological labels swing against incumbents and the policy mix that favoured asset holders.
In the background, classic havens are quietly repricing the risk of a sovereign-debt endgame. Gold has risen about 20% since September, enough for the Bank for International Settlements to call it“speculative.”
Yet Basel III rules now allow banks to treat gold as top-tier capital, and central banks – particularly in emerging powers such as China – have been adding to their reserves.
Gold the Insurance Policy
For many investors, gold is no longer just another commodity but an insurance policy against an overstretched global debt system. China and Japan add powerful external shocks to this domestic picture.
China's annual trade surplus has pushed above $1 trillion, with exports to the United States falling and shipments to Europe and the global south rising.
Critics see this not as strength but as a symptom of internal stagnation and demographic decline, and a source of deflation exported to already stretched consumer economies.
Japan's central bank, meanwhile, must choose between defending the yen and preserving a decades-old carry trade that has lubricated global risk-taking.
A firm defence of the currency could force Tokyo to sell US Treasuries, triggering a bout of bond-market stress before long-duration assets rally on slower US growth.
Taken together, these trends do not point to a neat soft landing, but to a system oscillating between deflation scares and new waves of money printing.
As deflationary pressure from China, a housing downturn and a tightening credit cycle build, governments are likely to answer with even larger deficits and fresh monetary expansion, setting up the next inflationary phase.
For ordinary savers, the cautious playbook is simple: hold more cash as dry powder, reduce leverage where possible – especially in property – and protect their position in the labour market. Policymakers can delay the cycle with immigration shocks and easy credit. They cannot suspend it forever.
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