Wall Street keeps telling us that the Federal Reserve is going to be lowering its policy rates soon and that market rates are going to follow that down. 

But Wall Street's been consistently wrong on this. The Fed has tightened more, and bond yields have gone up further than the street expected. Now, my crystal ball is no better than anybody else's, but I was very interested when Janet Yellen's Treasury Department, this week, issued their most recent financing details. And a big hat tip to my friend Larry Lindsey for writing this up. 

So, get this: the Treasury now expects to borrow $1.6 trillion in just the next 6 months – that's trillion dollars – between October 1, 2023 and March 31, 2024. That would come to roughly 11% of GDP. Those are big numbers, very big numbers. Virtually unheard of – 11% of GDP borrowing, nothing like it in peacetime.

Now today, as Edward Lawrence noted, Fed head Jay Powell reminded us that the central bank will continue to reduce its holdings of treasury bonds and mortgage-backed securities. Economists call that quantitative tightening. So far, the Fed has taken about $1 trillion out of the high-powered money supply over the past year or so. But if Powell and company are to be believed, they'll take at least another trillion out of the money supply.

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Which leads to the question: who exactly is going to buy the $1.6 trillion in new bonds? So, Uncle Joe Biden can keep spending his keister off if people do buy it, and spend he will, just like he has the past 3 years.

Now it's foreign aid with a big dollop of so-called "emergency spending" in areas that have no emergencies. It's a battle between guns and butter. Biden is choosing both, just like Lyndon Johnson over 60 years ago. Remember, Johnson blew up the budget and the inflation rate by spending on both Vietnam and the Great Society. 

Biden's blowing up the budget on Israel, which I totally favor, but also on Ukraine which really needs a mission statement and an exit strategy and a long conversation, plus Mr. Biden's got some peanuts for more babysitting at the open border down south. And $56 billion for various social spending that has nothing to do with anything except political election-year handouts.

But I'm going to come back to all that borrowing. The Biden Treasury just announced who's going to buy that stuff. The Fed says it won't. China hasn't been buying in quite some time. Neither has Japan. Meanwhile, the consumer saving rate has come way down, so that cushion may be gone. Of course, there are a lot of factors that drive interest rates, but sometimes supply and demand do matter, because investors may well want a higher interest rate to bail out Mr. Biden's profligate ways.

Meanwhile, over the last 32 months, worker wages have gone up 15.5%. But the level of the consumer price index has gone up even more -- 17.7%. So you have declining real wages and typical family incomes -- some have estimated the drop in median family incomes to be nearly $7,000 – that's the reason why Bidenomics is so unpopular. It's a question of affordability. Including an 8% mortgage rate.

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Folks are working hard, but they can't afford the Biden economy. That’s especially true for lower income families where the poverty rate has shot up in the recent Biden years. So, what's the economic outlook? Well, this is interesting. The Biden Treasury has said the fourth quarter will grow by less than 1%. And for all of next year, the Treasury is actually predicting a miniscule 1%. For the whole year! That ain't much. 

Meanwhile, I would say, with a topsy-turvy yield curve, where short rates have been higher than long rates for over a year, there's about a 65% probability of recession. My hunch is middle-class folks are sniffing this out and that's why they are giving Bidenomics the lowest grades of any president in recent memory.