12 Reasons Why The Fed Just Made The Biggest Economic Mistake Since The Last Financial Crisis

Tyler Durden's picture

Authored by Michael Snyder via The Economic Collapse blog,

Has the Federal Reserve gone completely insane?  On Wednesday, the Fed raised interest rates for the second time in three months, and it signaled that more rate hikes are coming in the months ahead.  When the Federal Reserve lowers interest rates, it becomes less expensive to borrow money and that tends to stimulate more economic activity.  But when the Federal Reserve raises rates , that makes it more expensive to borrow money and that tends to slow down economic activity.  So why in the world is the Fed raising rates when the U.S. economy is already showing signs of slowing down dramatically?  The following are 12 reasons why the Federal Reserve may have just made the biggest economic mistake since the last financial crisis…

#1 Just hours before the Fed announced this rate hike, the Federal Reserve Bank of Atlanta’s projection for U.S. GDP growth in the first quarter fell to just 0.9 percent.  If that projection turns out to be accurate, this will be the weakest quarter of economic growth during which rates were hiked in 37 years.

#2 The flow of credit is more critical to our economy than ever before, and higher rates will mean higher interest payments on adjustable rate mortgages, auto loans and credit card debt.  Needless to say, this is going to slow the economy down substantially

The Federal Reserve decision Wednesday to lift its benchmark short-term interest rate by a quarter percentage point is likely to have a domino effect across the economy as it gradually pushes up rates for everything from mortgages and credit card rates to small business loans.

 

Consumers with credit card debt, adjustable-rate mortgages and home equity lines of credit are the most likely to be affected by a rate hike, says Greg McBride, chief analyst at Bankrate.com. He says it’s the cumulative effect that’s important, especially since the Fed already raised rates in December 2015 and December 2016.

#3 Speaking of auto loans, the number of people that are defaulting on them had already been rising even before this rate hike by the Fed…

The number of Americans who have stopped paying their car loans appears to be increasing — a development that has the potential to send ripple effects through the US economy.

 

Losses on subprime auto loans have spiked in the last few months, according to Steven Ricchiuto, Mizuho’s chief US economist. They jumped to 9.1% in January, up from 7.9% in January 2016.

 

“Recoveries on subprime auto loans also fell to just 34.8%, the worst performance in over seven years,” he said in a note.

#4 Higher rates will likely accelerate the ongoing “retail apocalypse“, and we just recently learned that department store sales are crashing “by the most on record“.

#5 We also recently learned that the number of “distressed retailers” in the United States is now at the highest level that we have seen since the last recession.

#6 We have just been through “the worst financial recovery in 65 years“, and now the Fed’s actions threaten to plunge us into a brand new crisis.

#7 U.S. consumers certainly aren’t thriving, and so an economic slowdown will hit many of them extremely hard.  In fact, about half of all Americans could not even write a $500 check for an unexpected emergency expense if they had to do so right now.

#8 The bond market is already crashing.  Most casual observers only watch stocks, but the truth is that a bond crash almost always comes before a stock market crash.  Bonds have been falling like a rock since Donald Trump’s election victory, and we are not too far away from a full-blown crisis.  If you follow my work on a regular basis you know this is a hot button issue for me, and if bonds continue to plummet I will be writing quite a bit about this in the weeks ahead.

#9 On top of everything else, we could soon be facing a new debt ceiling crisis.  The suspension of the debt ceiling has ended, and Donald Trump could have a very hard time finding the votes that he needs to raise it.  The following comes from Bloomberg

In particular, the markets seem to be ignoring two vital numbers, which together could have profound consequences for global markets: 218 and $189 billion. In order to raise or suspend the debt ceiling (which will technically be reinstated on March 16), 218 votes are needed in the House of Representatives. The Treasury’s cash balance will need to last until this happens, or the U.S. will default.

 

The opening cash balance this month was $189 billion, and Treasury is burning an average of $2 billion per day – with the ability to issue new debt. Net redemptions of existing debt not held by the government are running north of $100 billion a month. Treasury Secretary Steven Mnuchin has acknowledged the coming deadline, encouraging Congress last week to raise the limit immediately.

If something is not done soon, the federal government could be out of cash around the beginning of the summer, and this could create a political crisis of unprecedented proportions.

#10 And even if the debt ceiling is raised, that does not mean that everything is okay.  It is being reported that U.S. government revenues just experienced their largest decline since the last financial crisis.

#11 What do corporate insiders know that the rest of us do not?  Stock purchases by corporate insiders are at the lowest level that we have seen in three decades

It’s usually a good sign when the CEO of a major company is buying shares; s/he is an insider and knows what’s going on, so their confidence is a positive sign.

 

Well, according to public data filed with the Securities and Exchange Commission, insider buying is at its LOWEST level in THREE DECADES.

 

In other words, the people at the top of the corporate food chain who have privileged information about their businesses are NOT buying.

#12 A survey that was just released found that corporate executives are extremely concerned that Donald Trump’s policies could trigger a trade war

As business leaders are nearly split over the effectiveness of Washington’s new leadership, they are in unison when it comes to fears over trade and immigration. Nearly all CFOs surveyed are concerned that the Trump administration’s policies could trigger a trade war between the United States and China.

A decline in global trade could deepen the economic downturns that are already going on all over the planet.  For example, Brazil is already experiencing “its longest and deepest recession in recorded history“, and right next door people are literally starving in Venezuela.

After everything that you just read, would you say that the economy is “doing well”?

Of course not.

But after raising rates on Wednesday, that is precisely what Federal Reserve Chair Janet Yellen told the press

“The simple message is — the economy is doing well.” Federal Reserve Chair Janet Yellen said at a news conference. “The unemployment rate has moved way down and many more people are feeling more optimistic about their labor prospects.”

However, after she was challenged with some hard economic data by a reporter, Yellen seemed to change her tune somewhat

Well, look, our policy is not set in stone. It is data- dependent and we’re — we’re not locked into any particular policy path. Our — you know, as you said, the data have not notably strengthened. I — there’s noise always in the data from quarter to quarter. But we haven’t changed our view of the outlook. We think we’re on the same path, not — we haven’t boosted the outlook, projected faster growth. We think we’re moving along the same course we’ve been on, but it is one that involves gradual tightening in the labor market.

Just like in 2008, the Federal Reserve really doesn’t understand the economic environment.  At that time, Federal Reserve Chair Ben Bernanke assured everyone that there was not going to be a recession, but when he made that statement a recession was actually already underway.

And as I have said before, I wouldn’t be surprised in the least if it is ultimately announced that GDP growth for the first quarter of 2017 was negative.

Whether it happens now or a bit later, the truth is that the U.S. economy is heading for a new recession, and the Federal Reserve has just given us a major shove in that direction.

Is the Fed really so clueless about the true state of the economy, or could it be possible that they are raising rates just to hurt Donald Trump?

I don’t know the answer to that question, but clearly something very strange is going on…

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Hitlery_4_Dictator's picture

They are doing this on purpose, duh

Looney's picture

 

How come cameras never show what Yellen sits on during the Fed Pressers?

Is it a stump, a toilet, or just a pee-bucket?  ;-)

Looney

TeamDepends's picture

#13. They are Lucies, and simply can not wait any longer for a Grand Mal Sacrifice.

The Merovingian's picture

#13 They want to crash the market and the economy early on so they can blame Trump in the next election cycle. Period.

SomethingSomethingDarkSide's picture

Federal Reserve is trying to sell sanity to a market it has already sold padded walls and straight jackets

Boris Alatovkrap's picture

Premise of article is Federal Reserve is honor mandate of price & wage stability, but, please, we are all know clandestine purpose of Fed is enrichment of Rothschild family.

gigadeath's picture

Georgia guidestones... Read 'em and weep.

Son of Loki's picture

I'll wait for Rachel Madcow or Meryl Streep to weigh in before I comment.

hannah's picture

the fed cant crash the market this time because they never sold all the bad debt to the greater fool. they still own all the bad debt so when the market/economy crashes they go down with everyone....

Herd Redirection Committee's picture

I think they wanted to pull it last year, but everyone knew it was a Shemitah year, and (((they))) would have had a tremendous backlash on them. 

caconhma's picture

An economy based  exclusively on printing fiat money cannot last forever. FED should never do this.

Keeping near zero-interest rates destroyed both savers and savings. These FED policies have destroyed US economy and US civil society. This led to a runaway welfare state, educational student loan bubble, uncontrolled immigration, runaway spending, destruction of civil liberties, etc., However, these FED policies supported uncontrollable financial markets speculation and destroyed healthy businesses. 

GUS100CORRINA's picture

STAGFLATION IS HERE.

The FED has no choice. 

SLOW or NO growth accompanied by rising prices. DEBT and EASY MONEY unintended consequences has arrived.

NoDebt's picture

"How come cameras never show what Yellen sits on during the Fed Pressers?

Is it a stump, a toilet, or just a pee-bucket?"

 

It's a tuffet.

 

johngaltfla's picture

Snyder is full of shit. The cost of money is not reflective of the Fed Funds rate. Banksters have been raising rates on consumers despite the current Fed Funds rate and now will simply pile on another 0.25% on top of it.

The Fed lost control of the system last year. Now they are trying to remain relevant before it blows up in their fucking face and they get blamed for their own incompetence in 2012 when they SHOULD have started raising rates.

nope-1004's picture

Totally agree.  Inflation has been rampant and would be more evident if it weren't for the FED meddling in the economy using the Exchange Stabilization Fund to cook the value of the only USD barometer, commodities.  Rates needed to rise a long time ago.

Grocery stores have been shrinking packaging size by 20-30% easily, yet when price stays the same people think there is no inflation.  Retards.

 

Eagle40's picture

You are correct. I have noticed the same thing in grocery stores with packaging. I used to buy the Dinkins Donuts 40oz bag of coffee for $14.99. They discontinued that size and are selling the 10oz for $11.99. That means if I buy 4 bags at 11.99 each to get 40oz I will be paying $48 for the same 40oz. That is,a $25 increase. Bullshit. I do not buy DD anymore. I get the store bought brand. 40oz for $12.99. That inflation being covered up. 

Stuck on Zero's picture

The Fed can print money to influence interest rates. If they can't print money they have no control of interest rates other than jawboning.

johngaltfla's picture

4 trillion dollars later and everyone including Snyder and Yellen are still full of shit.

If your statement were true, the Fed Fund rates would have an effective rate north of 21%.

Killdo's picture

I've noticed the same in Canada - lasagna dried sheats - they keep the same box but there is 30% less sheats in there

Killdo's picture

I've noticed the same in Canada - lasagna dried sheats - they keep the same box but there is 30% less sheats in there

Eagle40's picture

You are correct. I have noticed the same thing in grocery stores with packaging. I used to buy the Dinkins Donuts 40oz bag of coffee for $14.99. They discontinued that size and are selling the 10oz for $11.99. That means if I buy 4 bags at 11.99 each to get 40oz I will be paying $48 for the same 40oz. That is,a $25 increase. Bullshit. I do not buy DD anymore. I get the store bought brand. 40oz for $12.99. That inflation being covered up. 

delacroix's picture

kike snyder, profssional fear mongering israel firster.  this is the guy who said we would have an earthquake on the new madrid fault, for voting for a palestinian state. gods punishment.

cheka's picture

thanks for the reality check

PlayMoney's picture

It is reflective of the Fed funds rate....but not totally dependant on it.

Shift For Brains's picture

Just so. And Martin Armstrong's extensive historical analysis shows there is almost zero correlation between rising interest rates and crashing equities. He pretty much demolishes that idea entirely. I think he's said the same about rising interest rates always triggering PM collapse...they may be coincident but there is not a correlative relationship.

PlayMoney's picture

She sits on Bernanke. Part of his anatomy is open for discussion.

gmak's picture

The FED hasn't gone insane. They want conditions to get bad so Trump and the Republicans get the blame.

Houses Depreciate's picture

100 basis points at a time would make it much less painful. They have a very long way to go if it's just 25 basis points at a time.

 

Why prolong the pain?

Frito's picture

That would make sense, if you assume that they do not wish to inflict prolonged pain.

BigFatUglyBubble's picture

Everything they do is a mistake because only the "invisible hand" of the free market can properly set rates.  The FED is not physic or omnipotent, though maybe they think they are.  IMO it's one big psy-op ponzi scheme, and is quite intentional. 

 

FreeShitter's picture

Our lives are not complete w/o snyder and the kuntster.

BigFatUglyBubble's picture

Which is a better boxing strategy:

A. Tonight I'm going to win in the 3rd round with a left hook

or

B. Whenever and wherever he leaves himself open I will attack. 

That's like central planning vs free markets.  I know most people on here already know this, but maybe some don't.

Stuck on Zero's picture

I'm assuming the boxing opponent is the middle class?

skbull44's picture

Perhaps Michael is asking the wrong question. Perhaps he should be asking why a small cabal of PhDs are setting such rates in the first place?

FreeShitter's picture

Here's a better question. How come the american sheeple havent figured out that they are being fucked in the ass DAILY by the banking cartel w/o lube?

lakecity55's picture

Maybe.

I like some of his stuff, but some of it is fear porn. You have to sort through it. I wish Tylers would post stuff that's really good like articles from VoltaireNet and more Saker stuff. Those two are really informative.

 

 

yogibear's picture

The federal reserve and the deep state wants to destroy Trump. What better way? If it was Obama or Clinton they wouldn't have raised rates.

nevertheless's picture

Oh shut up!

 

Zionist Jews are the Deep State, Zionist Jews own Trump, now what part exactly of the make make Israel first agenda did YOU vote for?

 

Shortly after the 1 hour point, they get into Trump and his loyalty to Zionist New York Jews...Its an open secrete, the ZioMedia would never discuss. http://www.veteranstodaylive.com/2016/11/14/duff-on-election/

nevertheless's picture

We are coming to the end of the "American Century" and seeing the rise of Israel as the world power. If you think I am wrong, you are grossly misinformed as to who run America and our so called "Deep State" that which also controls both Obama and Trump.  

 

This is what happens when a nation of snow flakes (coincidentally they think our children are the flakes...) enjoys fighting each other instead of real threats to the nation. Zionists "educate" our children, own our financial system, control our governemnt, control our entertainment, tell "our" stories...And most Americans are perfectly OK with this arrangement, well lets see how this works out for all those who think "Israel is our greatest friend", when in reality they are our most dangerous enemy. 

Rikky's picture

yeah i think i saw netanyahu under my bed last night.  sheez.

shovelhead's picture

He takes the quarters out of my change bowl.

I never see him because that's how sneaky he is.

Killdo's picture

maybe 2nd worst - the Americans are their own worst enemy

HermanVanCuckold's picture

Every time I read an article titled "12 or 16 reasons for XXX", I think I am going to read some dogshit from Huffington Compost. Call it conditioning.....

LotUnsold's picture

Should have titled it "You won't believe the ..."

Batman11's picture

Just crash the system to get all the excess debt out the system and blame it on a "black swan".

Everyone who saw 2008 coming thought it was a debt problem, we have used more debt to cure a debt problem - insane.

Crash it and blame a "black swan".