The Fed Has A Big Surprise Waiting For You

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

Risdon Tillery Greenwich House day care, New York May 1944

The topic of potential interest rate hikes by central banks is no longer ever far from any serious mind interested in finance. Still, the consensus remains that it will take a while longer, it will take place in a very gradual fashion, and it will all be telegraphed through forward guidance to anyone who feels they have a need or a right to know. Sounds like complacency, doesn’t it?

Now, it seems obvious that the Bank of Japan and the ECB are not about to hike rates tomorrow morning. In Europe, dozens of national politicians wouldn’t accept it, and in Japan, it would mean an early end to many things including Shinzo Abe.

But the Bank of England and the Fed are another story. Though if the Yes side wins in Scotland next week, the narrative may change a lot of Mark Carney and the City. That leaves the Fed. And it’s important to realize and remember that, certainly after Greenspan entered the scene, speaking in tongues, the Fed has become a piece of theater. The Fed is about perception. About trying to make people believe something, and make them act a certain way that they choose for them.

That’s why after the Oracle left they pushed first a bearded gnome and then a grandma forward as the public face. The kind of people nobody would perceive as a threat. Putting a guy who looks like second hand car salesman in charge of the Fed wouldn’t work.

Not when a big financial crisis looms, and then continues on for a decade and counting. That makes keeping up appearances the no. 1 priority. That’s when you want a grandma, or you’d lose your credibility real fast. You need grandma for your theater, for the next play you’re going to stage.

That market volatility today is at record lows is part of a big play, or a big scene in a play if you will. And the goal is not to make markets look good, as many people think. Making markets look good, making the economy look good, is just an intermediate step designed to lure everyone in.

You make people believe you got their back. All the big investors. Because they make tons of money, while they thought maybe the crisis could have really hurt them. Even the public at large feels you got their back. Because they don’t understand what the sleight of hand is.

The big investors understand, but you got them believing you will play that hand forever, or let them know well ahead of time when you intend to fold. The big investors think you will skim the public, but not them. They think you’re all on the same side. And the public thinks you’re healing the economy, and saving their jobs and homes and pensions.

When rate hikes are discussed, like I did two weeks ago in This Is Why The Fed Will Raise Interest Rates, most people have similar initial reactions. ‘They can’t do that, it would kill the economy, or at least the recovery’.

But the truth is, there is no recovery. It’s just a scene in a play. And the economy is completely shot, it only appears to be left standing because the Fed poured oodles of money into it. Or rather, into a part of the economy that it can control, that it can get the money out of again easily: Wall Street banks. And Wall Street equals the Fed.

Charles Hugh Smith, in What If the Easy Money Is Now on the Bear Side?, notices that there are hardly any bears left in the market, and that shorts are disappearing as a source of revenue for bulls. Interesting, but he doesn’t yet connect all the dots. CHS thinks big money managers can make ‘the play’, that they can fool the rest of the market and unleash a tsunami that will bury the bulls.

I don’t think so. I think what goes on is that the Wall Street banks, many times bigger than the biggest money managers, see their revenues plunge. As they knew they would, because free money and ultra low rates are not some infinite source of income, since other market participants adapt their tactics to those things as well.

Which is what Charles Hugh Smith points to, but doesn’t fully exploit. And it’s not as Wolf Richter presumes either:

After years of using its scorched-earth monetary policies to engineer the greatest wealth transfer of all times, the Fed seems to be fretting about getting blamed for yet another implosion of the very asset bubbles these policies have purposefully created.

The Fed doesn’t fret. The Fed has known for years that the US economy is dead on arrival. They’ve spent trillions of dollars backed, in the end, by American taxpayers, knowing full well that it would have no effect other than to fool people into believing something else than what reality says loud and clear.

Philip Van Doorn, who I quoted two weeks ago, got quite a bit closer in Big US Banks Prepare To Make Even More Money

For most banks, the extended period of low interest rates has become quite a drag on earnings. Net interest margins – the spread between the average yield on loans and investments and the average cost for deposits and borrowings – are still being squeezed, since banks realized the bulk of the benefit of very low interest rates years ago …

That is the essence, and that is why grandma will announce higher rates, against a backdrop of 4% GDP growth numbers and a plethora of other ‘great’ economic data and military chest thumping abroad.

The US economy is dead. The Fed has known this for a long time, but pumped it up to where it is now to draw in all the greater fools, the so-called big investors who have made money like honey from QE and ZIRP. They are the greater fools. The American real economy ceased being a consideration long ago.

We’re in for big surprises, and they won’t be pretty, they’ll be pretty nasty. There are far too many people who think of themselves as smart who don’t see the difference between a theater play and a reality show. And I don’t mean CHS or Wolf, they’re much more clever than your average investment advisor.

The Fed will raise rates because that will make the biggest banks the most money. There’s nothing else that matters. The Fed can’t revive the US economy, that’s just a foolish notion. But it can suck a lot of wealth out of it.

Comments

[himaroid]

I use this as a place to vent the "negative energy".

And to gain valuable insight into investment and world events.

And to laugh my ass off at the jokers.

You would never know it from what I post here, but

I am as sweet as punkin pie in person.

[Wild Theories]

"You would never know it from what I post here, but

I am as sweet as punkin pie in person."

Actually I'd totally believe that, I'm a extremely cheerful person in RL too, I just come here for my negativity fix, and do some mental exercises,

sometimes I exercise by reading and puzzling over the issues of our times,

sometimes I get more workout fun for the mind by reading the comments and trying to judge who's the geriatric dumbfuck, who's the raging anarchist, who actually knows their shit, who knows the shit in their field but are dumbfucks when it comes to other areas outside of their field, and who's the basement-dwelling kid dressed up as a prophet selling one-dimensional doomporn to the geriatric dumbfucks who lap it up like milk :)

[nofluer]

MY "highest truth" would be about seven feet up... unless I get a chair or a ladder...

[JR]

Well, Wes, I like your beginning...

"My name is Wes Penre and I am a researcher and a writer. My main research since 1998 has been focused on exposing the Global Elite (the Powers That Be, who are pulling the strings on mankind from behind the scenes), in combination with humanity's spiritual journey into the future.

"In 1998 I posted my first website, Illuminati News, on the Internet and it is still up and running. It's a giant database where I expose the Global Elite (also called the PTB [Powers That Be] and the "Illuminati") and their plans to gain total control over mankind. I also on the Illuminati News website, to a smaller extent, explain that there are interdimensional star beings who pull the string on the Illuminati as well. So there is a strict hierarchy in this control system which extends to outside our planet and even into other dimensions. Therefore, in reality, the super rich families on this planet, whom we may think are in charge because of their incredible wealth and hunger for power, are merely puppets themselves in a much larger game, which is played out in other dimensions, by beings living in the, for us, invisible electromagnetic spectra.

"Illuminati News grew so big, and became so popular, that I decided to stop updating it, because it basically had grown too big. Instead I posted all updates from 2009 up until today on a blog I created, which I decided to call 'News from Behind the Scenes'...."

And your closing,
"in Service to the True Creator."

Keep posting and giving references to your site. In the meantime, I for one will explore what you have to say. I'm interested... Thanks.

[TheGreatRecovery]

Are we acting any better with "one creator" than we were acting when we had a whole Valhalla and Olympus full of gods? 

And, if there are 200 billion stars in this one galaxy, and at least 100 billion other galaxies that we know of so far, that means 20,000 billion billion stars, and who's to say there aren't, among them, millions of different life forms way more advanced than homo sapiens, life forms which might appear to us to, or at least to some homo sapiens a few thousand years ago, to be "gods".  Way more than enough to populate Valhalla plus Olympus plus a bunch more.  For example, what if Zeus was really a visitor from some super-intelligent spider-like species, and Archangel Michael was a robot built by a race of whales on a water planet on the other side of our galaxy?

[jfms99]

The Federal Reserve will never on their own raise Interest Rates. They can't because if they did their portfolio goes to Hell and higher rates result in in nuclear explosion to the Federal Budget on that more money will be needed to pay said interest on the Debt which will lead to some kind of selective default.

In the entire hisory of The Fed they have never raised rates on their own, it was always in response to the Bond Market and it will be so now. All the media specualtion about The fed is BS. It won't happen until they are forced to so and then all Hell will break loose and just maybe all the excess liquidity and debt overhand in the markets will be expunged an then and only then will real growth return to the economy.

[blindman]

THE ONLY SURPRISE the fed has is they are a demigod
in a hell realm and are currently impotent, but who would be
surprised by that revelation? so what is the surprise?
more but different bullshit does not constitute some new surprise in
my world.
disembowel the fed or just bury the thing.

[TheFulishBastid]

So if interest rates go back up, does that mean we get interest on our savings accounts?

Remember interest on savings accounts?

Is that just a delusion I have from my teenage years, or did you actually get money for saving money?

Or is that just another one of my commie delusions?

It kinda sounds like crazy talk when I read what I typed.

[eishund]

"The Fed will raise rates"

And pigs will fly.

[CHX]

<<< Rates will go up

<<< Rates will go down

What do you think ?