Brandon Smith: New Fed Chairman Will Trigger A Historic Stock Market Crash In 2018

Authored by Brandon Smith via,

Ever since the credit and equities crash of 2008, Americans have been bombarded relentlessly with the narrative that our economy is “in recovery”. For some people, simply hearing this ad nauseam is enough to stave off any concerns they may have for the economy. For some of us, however, it’s just not satisfactory. We need concrete data that actually supports the notion, and for years, we have seen none.

In fact, we have heard from officials at the Federal Reserve that the exact opposite is true. They have admitted that the so-called recovery has been fiat driven, and that there is a danger that when the Fed finally stops artificially propping up the economy with constant stimulus and near zero interest rates, the whole farce might come tumbling down.

For example, Richard Fisher, former head of the Dallas Federal Reserve, admitted a few years ago that the U.S. central bank has made its business the manipulation of the stock market to the upside:

What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.

It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow.

I’m not surprised that almost every index you can look at … was down significantly.

Fisher went on to hint at the impending danger (though his predicted drop is overly conservative in my view), saying: “I was warning my colleagues, don’t go wobbly if we have a 10-20% correction at some point…. Everybody you talk to … has been warning that these markets are heavily priced.”

One might claim that this is simply one Fed member’s point of view. But it was recently revealed that in 2012, Jerome Powell made the same point in a Fed meeting, the minutes of which have only just now been released:

"I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.

First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated. And we will be able to tell ourselves that market function is not impaired and that inflation expectations are under control. What is to stop us, other than much faster economic growth, which it is probably not in our power to produce?

When it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position."

Keep in mind, that Jerome Powell is now the CHAIRMAN of the Federal Reserve. In 2012, he was well aware of the exact effects that the removal of stimulus (which includes low interest rates) would have on the false recovery in stock markets. He continues…

"My third concern — and others have touched on it as well — is the problems of exiting from a near $4 trillion balance sheet. We’ve got a set of principles from June 2011 and have done some work since then, but it just seems to me that we seem to be way too confident that exit can be managed smoothly. Markets can be much more dynamic than we appear to think.

When you turn and say to the market, “I’ve got $1.2 trillion of these things,” it’s not just $20 billion a month — it’s the sight of the whole thing coming. And I think there is a pretty good chance that you could have quite a dynamic response in the market.

I think we are actually at a point of encouraging risk-taking, and that should give us pause.

Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy."

If Powell was fully conscious in 2012 of what would happen in markets due to the Fed’s balance sheet reductions, the question is, will he be honest about it now? My suspicion is that he will not, given that his very first interaction with the American public after becoming head of the Fed was to regurgitate the same nonsensical talking points that we heard from Janet Yellen for years.

The mainstream media is desperately attempting to suggest that Powell may “surprise investors” with a change in rate hike policies and the reduction of the balance sheet, but so far the markets are not buying this.

Powell’s first day as Chairman was greeted with the sharpest drop in U.S. equities in years. Yellen’s parting gift to investors in January was an $18 billion reduction in the Fed balance sheet, $6 billion more than the Fed originally claimed would occur. It is clear to me that just as stocks climbed in direct correlation to the Fed balance sheet, so too will they fall in direct correlation to the Fed balance sheet. Only a week after the balance sheet was cut more than expected, stocks fell by nearly 10%.

So, the question now is, will Powell continue this trend of rate hikes and balance sheet reductions, being that he is recorded as knowing what the results will be? I believe that this is exactly what he will do. Why? Because the Fed’s goal is the deliberate controlled demolition not only of U.S. markets but also U.S. debt instruments and the dollar.

If I am wrong, then Powell, knowing the threat, will reverse rate hike policies and stop dumping the balance sheet in an effort to prop up the system. If I am right, then we will see Powell continue these policies over the course of 2018 and allow the system to implode.

How will this influence the price of gold? Well, in the near term we could see a measured decline or a stagnant metals market as we have seen so far this month. That said, when the real equities crisis kicks in, expect metals to skyrocket as investors rush to safety. The psychology of the markets will come into play far more than fundamentals for a time. One must account for willful ignorance and how long it can be maintained before facts take over.

There are a few major issues that come into play in terms of interest rate hikes and the balance sheet, including the fact that corporate debt is now at levels far beyond that held just before the crash of 2008. We are also witnessing the highest consumer debt levels in history, while personal savings have plunged.

Treasury yields are also spiking to 10 year highs, decoupling from stocks and suggesting that balance sheet reductions might be contributing to a flight from equities.

Stock buybacks, fueled by low interest rates, have helped pump up stocks for years. However, most companies are prohibited from buybacks right before they report their earnings.  Not to mention, the amount of debt companies have accumulated is reducing their ability to purchase stocks. Without buybacks, we have seen what happens – complete market mayhem. If this is what takes place in a month of reduced buybacks, what will happen when interest rates are raised high enough to make borrowing capital from the Fed prohibitive (ie, too expensive)?

What does all this translate into? The reality that there is NO MECHANISM within our economy that is buoyant enough to keep markets afloat when the Fed backs away. Nearly everyone is in massive debt, there is no one left to buy at the level needed except the Fed.

We are only standing at the beginning of this apparent new trend in equities, but it will be interesting to see what the reaction will be within the system as the Fed continues hiking rates and reducing the balance sheet. Will the beginning of every month in 2018 be met with a brand new storm of selling and panic? It’s hard to say. However, the math certainly does not support a bull market through the rest of this year.

In the meantime, it is likely that blind faith in positive returns will spark intermittent buying events in the short term, and unaware investors (and algorithms) will see this as vindication that buying will always be the answer. But, these buying events so far seem to be met with even more severe downturns. It will not take very many Fed meetings to discern whether or not the central bank will continue to back up stocks. To me, it appears that the decision to pull the plug has already been made.


bshirley1968 Tue, 02/20/2018 - 23:20 Permalink

".........that when the Fed finally stops artificially propping up the economy with constant stimulus and near zero interest rates, the whole farce might come tumbling down."

"Might"?  I relish the day.

All Risk No Reward lloll Wed, 02/21/2018 - 02:33 Permalink

Exactly.  The "danger" is that the Fed's controllers will have Mega-Corporate fronts that vacuum up all the collateralized assets when people go bankrupt.

“The new law will create inflation whenever the trusts want inflation. From now on depressions will be scientifically created.”
~Congressman Charles A. Lindbergh, after the passage of the Federal Reserve act 1913.

The whole point of the bubble is to create the debt collapse.  The problem is that the populace has been too dumbed down to comprehend  the obviousness of this.

In reply to by lloll

new game All Risk No Reward Wed, 02/21/2018 - 05:04 Permalink

don't for nanosecond think these fuks are honest people. they are thieves. do you respect and listen to a thief? do you trust someone that steals your labor?(inflation and savings), do you allow a thief to continue stealing- like it is ok?-here, come to my home, the front door is unlocked, go inside help your self. 


In reply to by All Risk No Reward

JIMSJOE2 All Risk No Reward Wed, 02/21/2018 - 06:28 Permalink

This guy is clueless. First of all the FED does not buy stocks as they have no mandate to do so nor corporate debt. They are limited to buying a few types of assets classes like treasuries and US government backed agency debt like the 3 government housing agencies. Over a year ago Yellen was testifying before the Senate Finance Committee and a member actually ask her if passing a mandate to buy equities would help the FED fund the government. A huge smile lit up her face and she of course said "absolutely. So how does the FED front run equities? By lowering interest rates which lowers margin costs. As equities have been the only game in town in a low yield environment.  

      In the above article what the FED is talking about when they say they are concerned about more purchases is actually buying treasuries and not equities. Your clue is that "the dealer community is assuming a $4 trillion dollar balance sheet". What is the dealer community? Those entities that purchase treasuries and sale on the secondary market. These are the Direct Dealers like JP Morgan, HSBC, Goldman, Citi, etc. 

      The FED is not dumping treasuries but they are very slowly selling these to the big banks, (Direct Dealers), who then sell on the secondary market. They have had no problem in selling these.The banks have records amounts of cash.

      This is your typical alt media bullshit by people pretending to be some financial guru. The FED knows that it must raise rates to bring back yield as savors have been killed and this used to flow into the real economy which is one reason why GDP has been flat.

In reply to by All Risk No Reward

new game Lost in translation Wed, 02/21/2018 - 05:07 Permalink

people can be  "dumbed",  down so low that the whole of society collapses to a repressive slave like existence...

while they steal the print. it is called skimming. it is theft. it is a punishable crime.

is that to simple to understand? they hide behind authority granted them by congress, another crime. they cycle back enough of this print to pay off the whole of authority to continue their crime. we stand back in awe as they use fancy terms to describe their theft.

who is the idiot? surley not us-lol...

follow the trail to this tiny nation over in the mideast...

you say what bob?

In reply to by Lost in translation

LetThemEatRand Tue, 02/20/2018 - 23:21 Permalink

I predict Powell is going to do what Yellen would not do, which is why Trump picked him. He's going to raise interest rates, while also stopping any supposed offloading of the Fed balance sheet, and loosening lending to consumer (including subprime) debtors.   The King of Debt wants money to flow to consumers and savers alike.  This will cause a massive increase in monetary flow and inflation.  If Trump follows through with tariffs that will cause significant wage increases he may be able to pull it off in a way that will destroy treasury holders before it destroys the US economy, while keeping stock prices inflated in the face of rising interest rates.  The King of Debt is always going to sell bondholders short in favor of everyone else.  

bshirley1968 Oldwood Wed, 02/21/2018 - 00:09 Permalink

"Escape" and "safe place" are the wrong perspectives. Just roll with it. Americans have survived and thrived economic and comfort levels well below where we are now. We just need to stick together and remember who we are. We are rugged individuals that built the greatest nation the world has ever known. We play the hand we are dealt. We give respect and demand the same. For far too long we have let the punks in DC and NYC define our lives and cause the world to doubt our integrity and resolve.

It is high time we take that back from them. Our life goals are to see our sons and daughters strong, healthy, and full of life and love their fellow Americans. Not a search for a damn job or career! We build, compete, work hard, play hard, hunt, fish, stand with our neighbors, offer assistance where needed, and never back away from a call to meet head on the trials of life. We are like T-Rex. "T-Rex doesn't want to be fed, he wants to hunt." Americans don't want government assistance, we want to dig in, fight, claw and work our way to the goals we have set. We love our land, treasure the wisdom of our old, and bask in the vigor of our young. We know how to abound and how to get by. We don't fear an economic downturn, we relish the challenge. Let come what may, God is not dead, free men still dream, our spirit fears no hardship.

That is the American spirit, and all within our borders need to heed it's call. We will not go quietly into the night. We will not be pushed from the home we have built. Nor will we long tolerate an encroachment on our freedoms. An American is confident by himself or in the company of like minded people. He requires not the approval or applause of others when he knows what is right.

Let us put aside thoughts of escape or safety, but rather let us meet the coming trial head on with the character that was gifted us by those that have gone before us and shown us the way.

I am not sure we can survive it or maintain our identity in spite of it, but I am committed that our duty is to try. Start today giving up your lavish conveniences, insulate yourselves for the drought to come, and prepare for the opportunities to bring others along. Will we win? Maybe not. The victory is in how we kept our humanity, integrity, honor.....and how we went out as human beings and not like a dumb, greedy, fearful animal. That we stood for truth and right. That we helped the weak and those that could not help themselves.

I'll be looking for you, my fellow Americans, when the chips are down, the rubber meets the road, and the Fed is no more.

In reply to by Oldwood

NVTRIC bshirley1968 Wed, 02/21/2018 - 00:27 Permalink

Well crafted my friend.  We are out here, mostly alone.  I keep looking for a teacher to show me the way.  I look back and every one is following me.  Not all boomers were total shit, fuck that generational divide and conquer bullshit.  Your words speak to our ancestors, of divine interventions and blessings, of capable humans.


You give me real hope.

In reply to by bshirley1968

ManTheMan bshirley1968 Wed, 02/21/2018 - 04:40 Permalink

"We are rugged individuals that built the greatest nation the world has ever known"


Yeah, right. That's the core problem with USSAns, you believe in your grandeur. There is nothing great about your nation, apart from its geographical size and original beauty, which you managed to spoil. You made this area a trash place inhabited by millions of sick people. Great indeed! 

In reply to by bshirley1968

new game ManTheMan Wed, 02/21/2018 - 05:36 Permalink

the numbers that believe and act accordingly are less than 50 percent and diminishing. your speech could be a state of the union hope and change thingy. i applaud the speech and stand up. that is where it ends. sit back down and hope the neighbor has the balls to do the task. human nature. i drive as a courier every day and meet tradesmen and women that would fall into this category. then there are these pussy like "men" sitting behind desks that couldn't load a clip. i am to go shoulder to shoulder with snowflake fuks to save their freedom? they actually are the enemy, as they promote the very thing "we" are going to have to fight against. divided we shall fall as being observed. reality is a bitch. in the end it will be every man and woman for themselves. don't fool yourself, as that is exactly how we are being played. ask trump, the master manipulator, or obamby. oprah on deck-first black prez!!! awesome achievement-moar hope and change!   l-o-fuking-l...

In reply to by ManTheMan

bshirley1968 ManTheMan Wed, 02/21/2018 - 09:31 Permalink

I described for you what an American is, how they think, and how they act. I could have gone on but I touched the basics and could give names and examples, present and past. I didn't, because real Americans already know whom those hero's are for they inspire us to be Americans.

Have we made mistakes? You betcha. Have we failed at times? Most definitely. Nothing ventured, nothing gained. Failure is the well from which success springs forth. Experience is a hard teacher, for she gives the test first and the lesson later. Like any family we have members that don't always bring pride to the family name, but you can bet our neighbors have enjoyed the wealth and blessings we have shared. And share we no other country in the world. No other country has seen millions of people leave their home lands and turn their backs on generations of family history to BECOME AMERICANS. So bad mouth us all you want, but even you live in the shade of freedom and wealth we have been used to bring to the world. And all of you that want to praise the Swiss,and the likes of Sweden and Norway, right-wrong-indifferent, those countries owe there independent existence to America since does the mighty Great Britain.

Now, there is no doubt that the candle of rot has been lit at both ends. We have corrupt leadership on one end, and a large portion of our society that depends on that corrupt leadership, and have thereby corrupted themselves. The root of this corruption is in the bowels of the Eccles Building. The unlimited debt printing has created a massive welfare population of both rich and poor who have turned their backs on the values and principles that made us great. The "money " has bought our politicians, has weakened our youth, destroyed our economy, ruined our sense of responsibility, sacrificed our soldiers in criminal, unnecessary wars, tainted our reputation in the world, and clouded our minds to the point we no longer hold dear that which matters. We slaughter our babies because they might get in the way of making a buck. We have no time for family, friends, or neighbors because we are working like slaves to pay our debts. All of our ills can be traced back to the corruption caused by our "love of money....the root of all evil". We have allowed this central bank with its money changers to turn us all into debt whores. Our nation is cursed with it and because of it.

Yes, we have faded from the heights of our glory. We are under attack from all sides....mostly deserved. But it is not because of Americans. Rather it is because our country is being run by money whores, not Americans. Because we have generations who have not been taught to be Americans. Because we have people coming to our shores, no longer to be Americans, but for the money. It will only get worse until Americans demand their America back....and this will never happen until the Eccles Building is closed for good. I pray for the day. It is my belief there is not a single act that would help this country more than destruction of the Federal Reserve and it's debt, rotted money.

In reply to by ManTheMan

ManTheMan bshirley1968 Thu, 02/22/2018 - 06:36 Permalink

"So bad mouth us all you want, but even you live in the shade of freedom and wealth we have been used to bring to the world. And all of you that want to praise the Swiss,and the likes of Sweden and Norway, right-wrong-indifferent, those countries owe there independent existence to America since does the mighty Great Britain."


I am not bad-mouthing, I am describing the country in which I lived at times. America did not bring independence to the countries you mentioned. The USSR did by winning against the Nazis. What Americans did was to make sure that the soviets would not go further west, and turned most of western Europe into colonies / vassal states to Washington DC, and made these countries turn their backs against Russia and most of the slavic and orthodox cultures. The whole European continent was greatly divided and still is to this day BECAUSE of the USA (and the UK, another country that should have kept to itself as well). 

What I said still holds true: you live bathing in myths that bear little resemblance with reality. I am not denying the existence of exceptional individuals, which can be found in every country within every culture under the sun. But the USA is only great in the sense that its destructive power is immense. All that strength served no good, and I am still waiting to see or hear about the great deeds of the USA, and not some fantasy born out of propaganda constantly spewed by your education system.


In reply to by bshirley1968

Antifaschistische LetThemEatRand Wed, 02/21/2018 - 00:09 Permalink

Take AAPL, MicroSoft, Oracle, etc, etc...

They've piled on mountains of debt to fund their buybacks, pump prices and generate GIANT payouts to insiders, including fund mgrs, corp vips, etc.

So, now you've got 80 billion in debt with interest expenses doubling.  flushing earnings down the toilet in a PE climate that was already absurd.

See you on the other side boys...

In reply to by LetThemEatRand

mosfet CarthaginemDel… Wed, 02/21/2018 - 03:30 Permalink

Normally I'd agree to end the Fed but Congress would make them look fiscally responsible by comparison.  On second thought, maybe that would be a good thing...Congress printing so recklessly they'd decimate the Dollar in short order.  I'd still love to see an excruciatingly thorough and very public audit of the Fed, to air out all the dirty tricks and illegal crap they've been covertly performing over the decades.

In reply to by CarthaginemDel…

Milton Keynes Tue, 02/20/2018 - 23:40 Permalink

"The reality that there is NO MECHANISM within our economy that is buoyant enough to keep markets afloat when the Fed backs away."


Not if the Treasury starts serious Fiscal Stimulus.