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The Fed and Interest Rates Are Just Political Theater
Last week was a wash.
It was, after all, a holiday week. Most traders on Wall Street had left their trading desks well before Wednesday. Volume was light allowing those traders who were still manning the helm will have a free-for-all pushing the market this way and that.
So trying to make sense of this week is a pointless exercise. We are much better off concerning ourselves with the big picture.
The Big Picture is that the Fed has stopped its QE programs. As a result, investor attention has shifted to when the Fed will begin raising interest rates. Will the first rate hike come in mid-2015? Earlier? Later?
In reality, most of this is political theater. We have not had a Hawkish Fed in well over 20 years (possibly 30). As far as Greenspan, Bernanke, and Yellen have been concerned, the answer to any and all problems in the financial system has been to keep interest rates too low, print money, and buy assets from Wall Street (a kind of “cash for securities trash”)
Why does this matter? Because the last 20 years has shown us that the Fed immediately cuts rates and turns on the printing press at the first sign of trouble. Given the fragile state of the global economy and financial markets, the likelihood of the Fed raising rates in a significant or unexpected way is next to none.
Indeed, Ben Bernanke told a group of hedge fund insiders that rates will likely not be normalized in his lifetime (he’s currently 61, so he’s talking 20-30 years).
Again, all of this is political theater. The big story for the markets is not interest rates. It is the US Dollar. For over 40 years, the world has been borrowing US Dollars to finance real estate development, infrastructure projects, mergers and acquisitions, Research and Development projects, and the more. Today, globally, corporates and investors have borrowed over $9 TRILLION in US Dollars to finance other investments.
To put this number into perspective, it is equal to the economies of Japan and Germany combined (they are the third and fourth largest economies in the world by the way).
Why does this matter?
Because when you borrow in US Dollars to invest elsewhere, you are effectively shorting the US Dollar. If the US Dollar begins to rally (strengthen) you can blow up very VERY quickly.
Take a look at this chart.
This is the single largest chart pattern in financial history. It is a gigantic falling wedge pattern spanning over 40 years. When it breaks out to the upside, we’re potentially facing a 5+ years US Dollar bull market that will see the US Dollar rising to 120 if not 130.
And we just began to break it this year.
The world is awash in debt, most of it borrowed in US Dollars. When the Great Deleveraging truly begins, the US Dollar will rise rapidly as investors are forced to either pay their debts back (shrinking the amount of Dollars in the financial system) or default (ditto).
This would fuel a massive collapse in inflated asset prices around the globe. Anything and everything that was financed by cheap Dollars would collapse. Entire companies would go bust… as would multiple sovereign nations.
And this process has just begun. This is why emerging market currencies are collapsing. Brazil’s Real has lost over 20% of its value against the US Dollar in the last six months. The Australian Dollar has lost 16%. And on and on.
The real story for the world is not interest rates… it is that the era of cheap US Dollar financing everything on the planet has ended. What’s coming will not be pretty for anyone or anything that relies on cheap Dollars (this includes stocks, bonds, and the like).
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The zero % yield on savings accounts has been one of the most destructive forces on the merikan economy and Middle Class in USA history.
fiat currency is a bilderberg scam, reject the worthless paper, barter instead.
http://covert.co.nr
DOWN, not UP. I thought upper channel lines tended to represent the maximum that, historically, people were willing to pay for an asset. Whatever. Diversify. Pigs get slaughtered.
So what keeps the US gov't from making a law such as ".......now illegal to own gold and silver, blah blah blah blah, prison......"? Nothing. If it comes down to that it will be a matter of national security. We may be better off taking our chances with a partial ww3 otherwise it is a slow and steady grind to something much worse than now. They could simply pull a China on you and come to your house, take your stash and then cut your head off in the middle of the street and be there with open bags telling everyone to turn it in and be saved from what just happened to your neighbor. That's why I prefer disaster now than later because if it's later we're not gona have anything to fight back with.
Just the simple fact PMs are hammered by the MSM and the Elites only demonstrates it is one of the best guerilla strategies to preserve your wealth.
The federal reserve didn't end QE. They switched from transparent, above-board QE to hidden, under-the-table QE. Don't forget that.
This is all part of their psyops and misdirection, partly to artificially strengthen the dollar, even as they pretend they and everyone else wants their currency to crash and burn "to boost their exports and thereby boost their economy".
Defaults by oil and fracking companies due to lower oil prices will cause the next economic crisis. The FED will try QE4 but fail.
.. You heard it here first.
Defaults by oil and fracking companies due to lower oil prices will cause the next economic crisis. The FED will try QE4 but fail.
.. You heard it here first.
i agree gold will be of more importance in the future, noone can give a price because currently it's a tool that can be manipulated as a means to and end in, (fed.'s ), asset game of, whack-a-mole.
just thinking, if imf is going ahead with the sdr's, the dollar had better be strong, because gold backing is going to play a roll in the value of your currency.
has their been any defaults in america, that the fed. didn't want?
i'm not all that political, and dispise the current politics in america today, people say why haven't people stood up, well i attended a couple tea-party rallies, and it's refreshing to be around 10's, if not 100's thousands of all income levels of like minded people who want a constitutional fix to the present state in america.
i will attest the politicing is secondary at most, and mostly shunned at rallies. i feel good that every govt. agency has been assigned to eliminate the tea-party.
it's feels good to be feared by politicians, and govt., i feel i'm in the right spot.
You have to put it in "perspective", Wall Street has been estimated to be valued at $40 trillion. The "value" of the US is "$70 trillion" (including real estate values).
The value of the planet might be $700 trillion.
The "debt" incurred to the world in subprime dollars held a "GDP" of about $4 QUADRILLION.
I think the source ZH used undermined the amount of debt.
Sure $9 trillion in BRIC can go a long way. I think there's more out there. Much more. And it's not entirely used for "development" unless special interest bribed a politician for it. Otherwise, it was likely embezzled by a banker.
My favorite quote from 2008 was in November by an economist with Goldman Sachs " --before this happened it was inconceivable that it could happen "
The people who engineered the sanctions against Russia and the attack on the Ruble obviously didn't think too far ahead and consider the macro economic and geopolitical ripples and counter-ripples.
Hopefully the history books of the future are honest so that the future generations can learn from the massive mistake the US made by encrouching on Russia's borders in ever devisive ways.
“we will get a hyperinflationary collapse. Deflation is never tolerated in a fiat system.”
‘lasvegaspersona’
So true, so true. However, you miss a minor point: this is not a “fiat system”: it is not a currency issued against “thin air”. It is much worse.
Paper dollars (and bank reserves) come into existence IN EXCHANGE for US Treasuries (directly or indirectly). US Treasuries come into existence IN EXCHANGE for a belief in the ability of the US Treasury’s ability to collect taxes against future American tax payers. In other words, government debt is the process by which a generation of tax consumers financially cannibalizes following generations of American tax payers.
Again, it is not a “fiat system”; it is a system of financial cannibalism. It has been in operation at least 150 years.
Don’t imagine that we can depend on Congress to fix this problem; for, it was Congress that mandated implementation of this system thru the National Banking Act of 1863, the Federal Reserve Act of 1913 and numerous debt authorizations.
To say the least, American governments have become destructive of our rights. And, what is left to us when that happens? ‘We have the right, nay, the duty, to abolish or reform such governments’, Declaration of Independence, approximate quote.
The problem here is that Americans have no knowledge of HOW to perform such a task. Americans have the same rights and powers Founders had; but they have no knowledge of such rights and powers.
Needless to say, without such knowledge, Americans are helpless to stop, or protect themselves from, the slaughter that bears down upon them.
Hyperinflation is a physical currency event, there are only 1.3-Trillion FRNs in circulation globally, all the rest is credit, a promise to pay a dollar, a.k.a. DEBT. Hyperinflation will be impossible, the whole debt system will collapse long before they even start to print in any substantive way.
Hyperinflation is also a psychological event. The U.S. has already created currency and credit in the last 6 years at a rate that could spark hyperinflation. We're Wile E. Coyote confidently walking off the edge of the cliff and not having yet looked down to notice it. "Luckily" for us, we've got an extraordinarily disengaged populace oblivious to what's going on around it.
The current and '02 peaks in the dollar have been accompanied by ZIRP or near ZIRP.
The previous peak of '85-'86 the FED funds rate was at 6%. In other words, losing steam.
Stack more PM's with strong dollar.
This is the only rational comment on the whole page. The article itself has so much wrong with it; I'm not even going to start on it. I don't get paid for correcting the awful ignorant nonsense of this Article Poster; suffice it to say that that's what it is. To begin with, or as a teaser, I don't even believe in, or pay any attention to, the concept of "falling wedges"; this is the kind of nonsense that's made up after all the prices are already on the chart and you print whatever kind of pretty lines over it you choose. Nobody has ever traded anything by the use of "falling wedges". If I were asked to interpret this chart of the USDX; I would just say it's a long term downtrend with the usual rallies against the trend. the downtrend shows no evidence of proofs of being broken on this chart; which is to say to this date. The currencies referenced, Brazil and Australia, are classic commodity exporters; the relative purchasing power of these currencies has declined with the recent decline in world market prices for OIl and Iron and Coper and Coal; the basic commodities these currencies represent. The author's statement that paying back dollar loans decreases dollars "on the books" is nonsense; it's in conflict with reality; that's not what happens. PM's and in particular, coined silver, are the only things I could recommend to someone else with a good conscience over a time line of the next five years.
Paying back debt DOES decrease dollars on the book because banks create dollars out of thin air when emitting a loan using the fractional reserve banking principle. On paying back a loan ( the principal ), that same bank has to write off the repaid amount of money from their books and when all loans would be paid back, there would be no more money. DEBT=MONEY. The big problem with debt is the question around interest : where do THESE dollars come from?
PMs have always retained value.
Pay off debt.
Acquire as much PM % of your portfolio as you feel is needed.
Acquire any other hard asset you can barter for services or trade.
I see the above chart as a loss in value long-term of the dollar. It may rise as other currecies depreciate, but the largest pile of dogshit is still just dogshit at the end of the day.
The chart reminds me of the one showing the depreciation of the dollar from its FRN status in 1913 through today.
If you do not physically hold something at this point, you are in danger.
The $DX Bull, at this point in history, is now only as good as its foreign policy capability to sustain/defend it against backlash from the Russians & Chinese. Which in turn, could be only a foreign policy blunder away that pisses either of these two nations off sufficiently enough to to remove the safety cover and commence launch sequence operations (economically). This is the key area that 'phoenix capital' types either conveniently leave out, or dismiss entirely as even a possibility. Thus is the thought process of U.S.-centric thinking where, the entire global economic universe revolves around the $DX, forever & ever, Amen Marc Chandler...
Never in the long history of fiat money has a deflation been allowed to collapse an economy. Too many (important) people get hurt.
It is the response to this rise in dollar value that will give us the hyperinflationary blow off that has been building for generations. The Fed will print more, buy more (bad) debt and unless something else in the derivative haystack goes bad first (like gold) we will get a hyperinflationary collapse.
Deflation is never tolerated in a fiat system.
Isn't that what happened and continues to happen in Japan?
1931
in 1931 gold WAS the dollar. To increase the money in circulation they needed more gold. 2 years later Roosevelt 'fixed' that problem by confiscating gold and making the dollar (inside the borders of the USA) a fiat currency.
We are now in a purely fiat system. No gold is needed to increase base money. All the Fed does is buy new government bonds or old (almpost always bad) debt. This saves the banks holding the bad debt and prevents that debt and the money it represents from disappearing.
The petro dollar is only as good as the military industrial complex that defends it.
"the fed turns on the printing press at the first sign of trouble" -- so what's to stop it from doing it again and again while you keep staring at the pretty wedge chart pattern?
Cause and effect. Each round of QE has had less effect with only a special few having a gain. The next round will have a negative effect that will become very obvious as the new money that is created that does nothing but disappear.
so I have 5 more years of this nonsense?
:(
"When the Great Deleveraging truly begins, the US Dollar will rise rapidly as investors are forced to either pay their debts back..."
Assuming they will pay their debts back, "forced" or not.
Well, shrinking the amount of dollars in the system will be an easy task as there are only 1.3-Trillion of them in circulation.
That's the thing, if it can't be paid back it won't be and that includes US debt, though the so-called markets wear blinders so as not to see that giant turd.
The dollar bull is real but it will pull backsome over the next few months...
http://www.globaldeflationnews.com/u-s-dollar-indexelliott-wave-update-f...
Good article. I do tend to agree that we are in the early stages of a multi-year dollar bull market. The rest of the worlds currencies falling apart can only help fuel that, and a shorter-term gold bull market. I think we will try to do some back testing on the dollar chart before going higher. Mean while, expect gold to do well.
We have to wonder just how strong the dollar can get before it crushes debtors who cannot repay their loans. That is deflation and it is something the system cannot tolerate. It becomes self reinforcing and can quickly lead to a total collapse in the monetary system as one debt failure precipitates another.
So far in history the central banks have always stepped in and created new money to save the system from a deflationary collapse. It is less painful that way. So far in history hyperinflation has resulted 100% of the time.
That is what I expect, deflation causing a central bank reaction and then a loss of confidence in the currency.
That leads us into the next step in the history of money...fiat currencies with gold as the store of value for central banks and individuals. Gold will need to have much higher purchasing power for this to work...so gold will have much higher purchasing power. The age of using a single countries currency as the reserve is ending.
"So far in history ...CB's have always stepped in and created new money to save the system from a defaltionary collapse...."
There was deflation in the US from 1873-1900, for one example.
You are incorrect.
The Fed (the central bank) did not exist during 1873-1900.
Simple deflation is completely different from a deflationary collapse. Also, the period you cite was not dominated by a central banking cabal foisting fiat currencies on the world through legal tender laws; the FedRes wouldn't come to exist for another decade or two.
It is you who are incorrect.
Im starting to see where gold could actually do well along w the us dollar. Its hard to believe when us rates are as low as they are and the deflationary pressures but when currencies are being debased the way they are gold is looking better and better.
An ounce of gold is always worth an ounce of gold, the dollar is a gamble at the roulette wheel. Paper gold is easy to manipulate since its only a number in the market but PM's are a solid, definable reality. I've been buying PM's since the 70's for the security it provides. (President Carter taught me the fallacy of government competence)
1900 $ oz>>>>1200$oz yeah what were you saying about gold price action again......
Another whiny bitch who BTATH....LOL.
My $300 gold is still nice and shiny.
I guess you've not been paying attention.
Physical gold has been stable in price. If you are worried your physical could lose value, hedge it with a DGLD short.
I do not see a better place to store wealth.