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Why Any Rate Hike By the Fed Is Going to Be Purely Symbolic
The biggest question for investors today is that whether or not rates will rise in 2015.
The Fed may raise rates a token amount this year, but the move will be largely symbolic. With over $100 trillion in bonds and over $555 TRILLION in interest rate derivatives trading based on interest rates, the Fed will not be normalizing rates at any point in the future.
Indeed, former Fed Chairman Ben Bernanke admitted this in private during a closed-door luncheon with several hedge funds last year. Bernanke’s exact words were that rates would not normalize anytime during his “lifetime.”
So the Fed may raise rates from 0.25% to say 0.3% or possibly even 0.5%. But we won’t be entering a hawkish period for the Fed by any means.
The reason is very simple… any normalization of rates would implode the bond market.
The fact is that much of the globe, particularly the developed west, is up to its eyeballs in debt. Mind, you, this is based solely on official public debt numbers. If you include unfunded liabilities, then the US, most of Europe, Japan, and even China are sporting Debt to GDP ratios well over 300%.
In the US, a 1% increase in interest rates means over $100 billion more in interest rate payments. The US is already running a deficit (meaning that it spends more than it takes in via taxes) and has been for most of the last 20 years.
Of course, the deficit could become larger to service the increase in interest payments, but with the US already having to resort to issuing NEW debt to cover OLD debt that is coming due, this is a slippery slope. The US issued over $1 trillion in new debt in an 8-week period for precisely this purpose.
The reality is as follows:
1) Bonds are the biggest bubble in history, dwarfing even the real estate bubble of the mid-2000s.
2) This bubble also encompasses the bubble in Central bank policy. Every single Central Bank policy is focused on maintaining the bond bubble and the TBTF banks with the greatest derivative exposure to it.
3) When the bond bubble bursts, entire nations will fail, as will the Central Banks themselves. Draghi, Yellen, Kuroda et al will do everything in their power NOT to allow the system that has put them at the top of the economic food-chain to collapse no matter what the costs for ordinary citizens.
4) Rates will only rise significantly ONCE the bond bubble bursts. There may be symbolic raises here and there, but with over $555 trillion in derivatives based on interest rates floating in the system globally, you can bet there will NEVER be a shock and awe interest rate raise.
5) This bubble, like all bubbles, will eventually burst no matter what the Central Banks do. When it does, everything about modern finance will prove misguided and based solely on the belief that Central Banks can control the system.
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Did Bernanke really say that? Does he have pancreatic cancer, or a misbehaving nail gun?
We all know that that the max adjustment is going to be maybe a quarter point, and quite likely smaller, but it is still more than symbolic. As for the rest, it's just a matter of time until the Fed wipes their server clean, four trillion in debt - poof! gone. Make those Chinese wankers check on the backup drives for their debt.
imagine a word for inflation without rising interest rates : stagflation
if the can't raise rates the only thing the Fed can do is restrict credit, which is fine with the banks, they didn;t want to lend out the QE money anyway. and it guarantees more M & A and more buybacks. the Fed may find more QE in an environment of tight credit to be counter productive, however. i think they'll go back to REPO and POMO, the old Greenspan bag of tricks, to keep the existing liquidity that is out there churning, and moving forward. but that's like offering a heroin addict a beer. this could be one of those long dark Nasdaq 2000 moments. where the market just keeps going down. bottom line the Fed has to follow the market, and tightening credit is their only option if the pressure on rates asserts itself. new economic activity is anthema, as it spurs credit demand. so (pause) the Fed plunge protection team may actually be SELLING S & P futures to cool down this market, and tame any economic surge, that would wreck their delicate balance. strange outcome number 99
If a .25% rate hike is unpossible after 7 years than they might as well print 20 trillion dollars and get Ben back in the helicopter. We're not talking about normalizing rates, we're talking about a .25-.5%, just so the clown at the FED can say see we raised rates, and it killed the economy.
In all reality nothing can pay for what's coming down the line. No way to grow our way out of this mess. Can't have the average bommer sucking $500,000 to 1,000,000 dollars a peice out of thin air. Can't fight a 50 year war against terrorism, drugs and poverty. Can't send everyone to college to get degrees they either don't use or can't find a job in their major.
Unless all debt is either monetized or forgiven its all just short sighted bullshit. Its all just paper anyways. They've been printing it for years.
Gold is for dummies, same with Bitcoin. I prefer digital Federal Reserve notes and shtawks.
Hosting unsustainable debt is like hosting malignant cancer. Gauranteed that the host will die in the end.....soon.
This one's easy. They want to have a rate hike, but they don't want it to have a negative effect. But I don't think they can fit enough zeroes after the decimal point in front of the hike for it not to have a negative effect.
When conditions are right all it takes is one little vibration to start an avalanch...
The market is not the economy. The FED has a dual mandate to manage inflation and employment. It has proven it can do neither. So it concentrates on what it can do: print money and give it to banksters.
Yep. It's like getting on a plane from New York to LA, except you don't really get on the plane. Instead, you sit in a seat and do the trip on TV. Problem is, you never really got to LA after you landed. But that's what they've done. Just like you said. They've tried to turn the markets into the economy. "Ladies and gentleman, we're about to land..."
Flashback, where did our all our rising wedge, end of the bull market articles go? Shaping up to be an official breakout today. Without a rollover today say hello to an even higher market.
Not even "symbolic" . I D double dare thoses ignorant war drum beaters to raise rates even i bip. I have come to the conclusion that Jew bankers and their political chumps are satan.
The FED and the rest of the western central banking cartel have already lost every shred of credibility they had, except with the CNBCtard lemmings.
If CNBC and the rest of the matrix media the bankster cabal own didn't cheerlead for the syndicate daily, they would have no credibility.
The markets must be served, at least according to the markets. Even a 25 bps increase would cause a giant shit storm led by the mega-banks who put out all those derivatives that go from money makers to dangerous paper with the slightest increase. Nothing will be done because nothing can be done that won't speed up the economic implosion....
The incessant chatter from the Fed regarding a rate hike is completely disingenuous. It is not possible for the Fed to raise rates because it would blow a fiscal hole in the US Treasury budget, in addition to dislocating the credit markets. If the Fed came clean and stated it had no idea how to avoid monetizing the debt it has bought going forward, same result.
Or they could just print more money to pay for it like they always have.
just print more money to pay for it
You, sir, have hit the nail on the head. As long as everyone is willing to accept USD at anything like its current real (haha, imagine an economic system that needs to distinguish between 'real' and 'nominal' -- we're ridiculous) purchasing power, the game can continue. My guess is that there is a suspicion among TPTB that this acceptance will not, however, go on forever, or even much longer.
There does not need to be a rate hike for things to unravel. At some point confidence in the future value of all those dollars held begins to crumble (e.g., one or two big central banks starts dumping), then I expect that to trigger a rush for the exits, dollar-wise.
^^THIS^^
I see no reason that the FED will hesitate to raise rates when they finally feel it is time to prick the bubble. The idea that whatever increase in outlays by the Federal Government wouldn't simply be monetized is naive. Raise rates along with a little Belgium bond buying spree and you're status quo on the deficit. The FED surely has many reasons for holding off on tightening but when you have/can/will monetize the .gov debt I don't think a bond-pocalypse is one of them.