There is a palpable air of panic in the air as the arrogance of the Federal Reserve banksters once again becomes obvious to even the most amateur of economic observers.
Way, way, way back in history on November 4, 2021, these pages warned of the original blunder by this central bank of which the implications of their continuing policy errors would become obvious:
In this writer’s opinion, it would appear that the Federal Reserve and other international central bankers believe that their own forecasts, which have been consistently wrong before every recession, are hoping, not planning, for an exit from Q.E. sometime next year while projecting a decline in the higher rate of change in monthly inflation.
This blunder is worthy of the Weimar banking system and probably will result in a disaster for the US and its consumers. The idea of thinking that by maintaining a bloated balance sheet while continuing to expand the monetary supply without viable credit creation now means that the circumstances are being established for the dangerous types of historical hyper inflationary periods which have destroyed financial systems and governments throughout history.
And thus we are here.
The Fed leaked that they are considering, which means the banksters are enacting a rate increase of the Federal Reserve Fed Funds rate by 75 basis points. This is obviously a panic move which will have zero impact on inflation other than tightening consumer credit and creating problems for small enterprises attempting to refinance or roll over short term debt.
Welcome to the Occam’s Razor problem for Jay Powell.
Instead of a simple solution leading to a quick, painful recession followed by a new expansion the circus clowns at the Fed have presented the three courses of action to the financial elites over the past several months and all three options are so complex they will probably result in a greater disaster over the long term for Western economies.
Option 1 – Continue with the current program of a 50 bps increase and structured Quantitative Tightening. This is nothing more than the acceptance of and endorsement of a stagflationary outcome could last years but it is still a possibility today considering the threat of a full blown major recession hanging over the US economy.
Option 2 – The proposed 75 bps increase but status quo on Quantitative Tightening. The pace of the runoff of Fed assets would continue per the original program but the slightly higher increase in the Fed Funds rate would be a virtual nod to the banks to tighten the financial system. While this will impact risk assets the pain would be short term. The reality is that the impact on inflation in the long term is negligible at best as the pace of inflation is realistically between an accelerating 1.5% to 1.7% monthly rate of increase. It is still a stagflation outcome leading to a major recession.
Option 3 – Ignore the fear and go full Paul Volcker. The risk at this point with a 75 bps increase and announcing further 75 point increases for the next five Fed meetings in addition to an actual liquidation of MBS and Treasury assets on the Fed balance sheet is that the economy will collapse further and faster in the next 90 days. While this would be a good start to slamming the brakes on inflation, the reality is that it will do nothing but lock down the financial system to the most vulnerable guaranteeing an almost doubling of unemployment as corporations accelerate cost cutting plans. This is the least likely outcome as there are national elections in November and that would turn the Fed into the enemy of both political parties and Wall Street as asset prices would collapse almost immediately and a credit shortage (crisis) would envelope the nation.
Thus I think Option 2 is the most likely outcome. The equity markets will get a sugar high but that will roll over as the smart money liquidates into the rally. Why do I have no faith in the Federal Reserve to do the right thing?
That’s an easy answer:
This is typical of all elites inside of Washington, DC as the inability to relate to small and medium business owners along with the peasants who work there truly is never discussed at their cocktail or yacht parties.
The inability of those who work at the Federal Reserve to comprehend the impacts on a global scale of their decisions is now coming home to roost and the word “credibility” will be thrown around with reckless abandon by the Bubblevisions.
The course of action will do nothing to re-establish Fed credibility nor culpability for twenty-five years of destructive decision making. In the end I think that the equity markets will end June down another 10% at a minimum along with risk assets like cryptocurrency and high yield bonds declining another 20%+ depending on the phrasing of the Fed statement.
Unfortunately for the Fed, inflation will persist well above 7% for the near future and the real inflationary number north of 18% at least until at least November of this year. I warned back on April 7th that the Fed will let the masses eat inflation to achieve a successful roll off of the poor quality assets their system has acquired and I see nothing to change that in the near future. Nothing since the April Fed meeting has changed my opinion.
The scary part is that the Fed isn’t the only incompetent game in town; just cruise down the street from the Fed and observe the shitshow known as the Biden Junta and Congress and any actions taken by America’s central bank almost seem to be irrelevant by comparison.
As a result, acquiring hard assets like precious metals as new lows appear almost appears to be critical for anyone’s financial survival.
Especially when unscheduled “holidays” begin to happen later on this year.