This article was written by Brandon Smith and originally published at Alt-Market.com
In an article published in September 2015 titled 'The Real Reason Why The Fed Will Raise Interest Rates' I outlined a kind of economic war game, a predictive theory in which the Federal Reserve would hike rates into clear economic weakness in order to deliberately cause the implosion of the vast financial bubble they had created through several years of quantitative easing. At that time this theory received a lot of opposition. Nearly everyone in the mainstream and in the alternative media argued that the Fed was going to shift to NIRP (negative interest rates), in order to continue propping up the system. The idea that the Fed would actually raise rates and cause an engineered crash after propping up the system for so long was treated as outlandish.
Of course, this is exactly what happened. Within a year the Fed had started to tighten policy instead of extending stimulus measures. The denial that this was happening was so strong that many analysts claimed the Fed was simply “pretending” to tighten when they were actually still stimulating. Yet, this claim turned out to be incorrect; nearly every sector of the economy began an immediate and steep decline the moment the Fed launched interest rate hikes and cut its balance sheet. The evidence was mounting that yes, the central bank was not just pretending to tighten – it was actually strangling liquidity and the mirage of economic recovery was quickly fading.
To this day and despite all the evidence to the contrary some people still argue that the fed is either not tightening, or will reverse on tightening measures very soon. In fact, every month since last November there has been a chorus of voices saying that “this is the month” that the Fed will return to easing and possibly QE4. And, every month they have been wrong. This includes this past month of June, when so many people were so certain that a Fed interest rate cut was baked into the cake.
In my article 'The Federal Reserve's Controlled Demolition Of The Economy Is Almost Complete', published in March, I predicted that the Fed would continue to hold interest rates steady for many months to come and that Fed language of “accommodation” and “patience” was a head-fake to keep the investment world tied up in stock markets as every other major indicator showed a recession was upon us. Again, this is exactly what has happened.
Once the Fed raised rates to their neutral rate of inflation (something they had not done for decades) the fate of the US economy was sealed. To be fair, the real rate of inflation is much higher than the Fed admits, but the point remains that the US economy as it stands today cannot handle even moderately higher rates. With corporate and consumer debt at historic highs not seen since 2007 just before the credit crash, any interest pressure above zero is going to destroy the fragile economic bubble.
Some people claim that the Fed is completely unaware of this situation and is fumbling in the dark. But this is not true. In 2012 Jerome Powell outlined exactly what would happen if the Fed began tightening policy in the October minutes of the Fed meeting. Powell KNEW that higher rates and balance sheet cuts would cause the kind of crash which is now happening; but as soon as he became the Fed chair in 2018 he launched tightening measures anyway.
Whether you are for or against Fed tightening measures is truly meaningless. The point remains that the Fed created the Everything Bubble, and now they are crashing the Everything Bubble and they know they are doing it.
So, where do we go from here? Has the Fed done all the damage it needs to do to ensure a crash? Is all this talk of accommodation actually real this time? Will they cut interest rates soon in order to prop up the system longer. I continue to predict the Fed will not be cutting interest rates or ending balance sheet cuts until there is a blatant breakdown, or a major distraction event. And by “breakdown” I am referring to public perception of the economy waking up to the reality of the crash.
It is important to remember that the US economy has been in negative territory for the past 10 years. It has been hanging by three thin threads – the first being Fed stimulus (which has now been taken away – sorry skeptics but this is a fact), the second being the dollar's world reserve status, and the third being public perception of recovery. The central bankers are now relying heavily on the manipulation of public perception in order to keep certain sectors (like stock markets) afloat for a little while longer. What is the specific goal in this? It's hard to say. However, the move to trick the investment community into making far reaching assumptions has some advantages.
Stock markets are absolutely useless as an economic indicator because they lag far behind real financial conditions. Stocks fall after every other fundamental indicator has already turned negative and the crash is already at the public's doorstep. However, they do serve one purpose; stock prices can be exploited to give the population a false sense of economic health, leaving them unprepared and vulnerable to the consequences of a downturn. Most Americans do not track economic data beyond stocks and employment, which are both highly manipulated points of reference.
Stocks remain levitated on two factors: Massive stimulus from China since December, and blind hope from the investment world that the Fed is going to bring back the punch bowl and pump out stimulus again. Minor language changes to Fed statements are now hyped as dominant indicators that the Fed is about to flood the markets with liquidity; yet other language indicators showing the opposite are ignored. With so much capital lured into stocks on the “certainty” of Fed rate cuts or stimulus – I ask, what would happen if the Fed DOES NOT fulfill growing market expectations?
On June 19th just after the Fed meeting I noted that there was little chance of of a rate cut in July, and recent statements from Powell and St. Louis Fed President James Bullard support this argument.
After the June meeting, many in the investment world priced in a 100% chance of an interest rate cut in July. Why did they do this after being wrong every month for the past several months? I still can't figure out what the source of this assumption is. Nowhere in the Fed's minutes or in post meeting statements has the Fed indicated a cut in July. The reality is that the last Fed meeting showed NO CUTS until the end of 2020. This does not necessarily mean the Fed will hold rates until that time, but there is no evidence to support the notion that they will cut in July.
Perhaps I am wrong and the Fed will follow assumptions this time instead of assumptions following the Fed. I haven't been wrong on Fed policy changes yet, but my point is, there is no evidence that they will cut next month, only expectation based on hearsay.
The Fed continues to lie about economic expansion, claiming a strong recovery or improving fundamentals when all the data shows economic decline; from bond yields to housing sales to housing prices to auto markets to manufacturing to shipping and freight to retail closures to weakening job prints, etc. At the same time we are witnessing inflationary pressures in necessities like food, fuel and rental housing. It's a stagflationary mess.
Incessant reporting of strong economic health and the defiant dismissal of declines is not the behavior of a Fed that is about to capitulate on tightening. Yet, the investment community has been all-in on a rate cut for months. When the rate cuts don't come, they then assume that the past month was close, and that the next month is a sure thing. It's truly bizarre.
As long as the Fed holds rates near the neutral rate of inflation and continues to cut assets from its balance sheet, flooding the economy with treasuries, mortgage backed securities and toxic assets, the decline of multiple sectors is assured. There may come a point in which the Fed has done all the damage it needs to do to accelerate the crash, allowing them to then pull back on tightening, but we have not reached that point yet. As I have noted in past articles, the Fed has done all this before.
Creating enormous financial bubbles and then deliberately popping them is a classic central bank maneuver. Each time, they claim they were “unaware” of what was happening, then years later admit outright that they knew what was happening; from Alan Greenspan admitting that the Fed was well aware of the bubble that led to the crash of 2008, to Ben Bernanke openly admitting that the Fed had caused the Great Depression by tightening into economic weakness in the 1930's.
Tightening liquidity and policy conditions into economic weakness is what central banks do to trigger chaos. But why would the Fed deliberately initiate a controlled demolition of the US economy? The bottom line is central banks are tools of the globalist elite. They are not as autonomous as they seem. No, the Fed does not answer to the US president, but it does answer to the Bank for International Settlements, as do all other major central banks in the world.
The economic disasters they create are then used as leverage to consolidate financial wealth as well as control of hard assets into the hands of these elitists. Crisis events are also used to consolidate power over the people and to centralize governance on a global scale. The Fed is nothing more than a mechanism used to help achieve this agenda.
Alternative economists should abandon any notion that Donald Trump will interfere with this plan. Trump has been under the thumb of the globalists ever since Rothschild banking agent Wilber Ross bailed him out of his debt obligations in the Taj Mahal casino in the 1990's. Wilber Ross is now Trump's Commerce Secretary, standing over his shoulder along with a large crew of other elites in Trump's cabinet. This would explain why Trump vehemently criticized the Fed for inflating the Everything Bubble under the Obama administration through artificially low interest rates during his campaign, and then suddenly pulled a full reversal once he was in the White House and claimed his administration was the reason for all time highs in stock markets.
Trump has also stated time and time again he has no intention of trying to unseat Jerome Powell (he did it again just this week), and frankly he has no power to do so anyway. His "battle" with Powell is a farce.
The Fed is a private entity, and as Alan Greenspan once openly admitted, it answers to no one. Trump has attached his administration so completely to the economic bubble that when it completely collapses he and his conservative followers will inevitable be blamed and it is my belief that he is doing exactly as he has been told to do by the banking cabal.
This leaves one final question – What is the Fed waiting for? Why not crash everything including stocks right now? Why continue to head fake investors on rate cuts and accommodation? As I noted in my recent article 'Globalists Only Need One More Major Event To Finish Sabotaging The Economy', the elites need a distraction that would satisfy the public's search for a rationale after the consequences of the crash finally hit them. The accelerating trade war is very useful for this, but it is not enough. The globalists need something else.
This may come in the form of a shooting war, possibly with Iran. It may come in the form of a “No Deal Brexit” in October (and I continue to predict this is an intended event). It may also come in the form of a surprise retaliation from US trading partners, such as a dump of US treasuries or the dollar as the world reserve currency. This is what the globalists are waiting for.
Once such an event takes place, or perhaps just before the event, the Fed may finally cut rates again, or stop its balance sheet dumps. It may not. Trump's trade war is leading towards price inflation, which could be used by the Fed as an excuse to keep interest rates steady or even hike them again. Nothing is written in stone except the primary agenda, which is: Inflate financial bubble through stimulus, implode financial bubble through tightening. Afterwards, the Fed has options. It can stimulate again as a non-solution, or do nothing. Either way, the crash is already a given and the Fed has no intention of stopping it.
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