The Fed Has No Clue How to Create or Control Inflation

Let me let you in on a little secret...

Central Bankers don’t actually WANT inflation.

The Fed’s “inflation target of 2%” is a giant ruse. The Fed has no clue how to create or control inflation. They even admitted this in the minutes of the July 2017 FOMC meeting.

So if the Fed has no clue how to create or control inflation… why even bother with a target to begin with?

Because having a “target” gives the Fed some goal that it can claim to pursue, while it papers over declining living standards in the United States.

Put another way, the inflation is a distraction from the real schemethat has been playing out since the early ‘70s.

That scheme involves issuing endless amounts of debt and credit to cover up the fact that incomes are not rising in line with costs of living in the US.

We see this all the time (why are two parents required to work to makes end meet when one parent could cover an entire family back in 1970?) but because the erosion of “quality of life” is so gradual, no one ever flips out.

The problem with this scheme (issuing endless debt and credit) is that if it persists long enough… REAL inflation hits.

And that is a MASSIVE problem for the Fed.

Why?

Because bonds trade based on inflation. When inflation rises, bond yields rise to account for it.

When bond yieldsRISE, bond prices FALL.

When bond prices fall, the Bond Bubble bursts.

When the Bond Bubble bursts, the EVERYTHING bubble follows.

Which brings us to today...

As I write this, the yields on Germany’s, the United States’, and Japan’s government bonds are ALL breaking out to the upside having broken multi-year trendlines.

This is a MASSIVE deal. It is telling us that it is getting harder and harder for these countries to service their debt loads.

Eventually this is going to trigger a debt crisis. And when it does, the crisis will be far larger than that of 2008.

It will take time for this to unfold, but as I recently told clients of my Private Wealth Advisory report, we're currently in "late 2007" for the coming crisis.

The time to prepare for this is NOW before the carnage hits.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what's coming down the pike when the Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

Comments

Kprime Mon, 05/21/2018 - 16:23 Permalink

don't worry, be happy

Let me see your Boogaloo!

I said, Let me see your Crocodile!

Let me see your Popping corn!

Let me see your Monkey dance!

manlius torquatus Mon, 05/21/2018 - 17:39 Permalink

My huge worry is not getting the "national debt" under control and along with it runaway "deficits." These congresses regardless of the party in control have behaved criminally when it comes to out-of-control spending.  None of those cowards in congress want to address the SS system that is running out of money putting us seniors at risk, and have "botched" up the health care system that is now almost "unaffordable" for those with "limited" incomes.  The feds need to hold interest rates where they are so that folks like us can purchase the basic necessities without fear of inflation. 

Salmo trutta Mon, 05/21/2018 - 17:41 Permalink

The validity of the money multiplier as a predictive device (UDK, 1974) is predicted on the assumption that the commercial banks will immediately expand credit and the money supply (invest in some type of earning asset), if they are supplied with additional excess reserves.

The inconsequential volume of excess reserves held by the member commercial banks during 1942 and Sept. 2008 provides documentary proof that they undoubtedly did.

In other words, without the alternative of remunerating excess reserve balances (which turned non-earning assets into bank earning assets), it's virtually impossible for the CBs to engage in any type of activity involving its own non-bank customers without changing the money stock.

After the introduction of the payment of interest on IBDDs, the CBs obtained higher rates of return by accepting a riskless, policy floating/chasing (when the Fed raised rates), remuneration rate. The remuneration rate “inverted” the short-end segment of the wholesale funding yield curve (destroying money velocity).

slightlyskeptical Mon, 05/21/2018 - 17:55 Permalink

Bullshit.

Fed creates inflation by raising rates...lowers inflation by cutting rates. 

Wall street does their bidding in other countries by forcing their rates up and down. 

 

 

Sudden Debt Mon, 05/21/2018 - 18:33 Permalink

HELL NO!

 

Inflation is here everywhere you look.

Today I wend to the market, prices increased by 10% this month alone. Foodprices are skyrocking!

Rents, houseprices, car prices, you name it!

 

The only thing that's not going up are salaries.

 

J J Pettigrew Mon, 05/21/2018 - 19:06 Permalink

Federal Reserve Mandate #2

STABLE PRICES...

They have no right to promote inflation.....anymore than they have the right to promote deflation..

NEITHER IS PRICE STABILITY...

 

JailBanksters Mon, 05/21/2018 - 21:40 Permalink

I've got this

The World is FCUKed, it's not getting any better, and it's YOUR fault.

It's NOT the Bankers fault, it's because people aren't buying enough crap they really don't need with money they really don't have.

fbazzrea Mon, 05/21/2018 - 21:53 Permalink

as long as the Fed continues to pay interest on the global bankster's (member banks) reserves on deposit at a higher short-term (overnight) rate than is available risk-free anywhere else, member banks will not lend to private businesses. reserves on deposit with the Fed earn overnight rate while required reserves held in their own vaults earn NOTHING. that's why the Fed only requires about $40 billion held in reserves by their member banks but their deposits with the Fed exceed $2 TRILLION. if that money EVER hits the U.S. economy, inflation will be impossible to hide.

the January crypto moonshot was a Fed windfall as it removed around $800 billion from circulation and then was torched down posthaste to under $400 billion market cap. poof! >$400 billion vanished into the same thin air from whence it came. 

in a circle the wagons move, credit card companies (member banks) blocked transactions with crypto exchanges, sterilizing (removing) an almost $1 trillion in liquidity.

likewise, if the mercantilists (member banks) allowed PMs to find true price discovery, there would be a tremendous boost in velocity. USD would fall through the floor and the real value of the U.S. govt debt owed the Fed (member banks) would shrink to manageable levels. 

whatever game the dealer (Fed) calls, rest assured, he's dealing for the house (member banks).

besnook Mon, 05/21/2018 - 22:33 Permalink

i'd give it a coupla more months before jumping to conclusions. it looks to me like it is about to rollover and crush a few bond bears.

tunetopper Mon, 05/21/2018 - 23:56 Permalink

Maybe if they gave us alternative calculations of inflation ex-hedonic adjustments and using different family structures and incomes we would find that there has been a whole lot of inflation that weighs heavily on family formation-- for instance.

Pernicious Gol… Tue, 05/22/2018 - 00:09 Permalink

A working husband could support a family including a stay-at-home mom in the 1950s, 60s and 70s because: The family didn't buy on credit a staggering amount of expensive crap they don't need; nobody bought designer anything; mom cooked at home almost every night of the year, with restaurants visited almost never; and vacations were rare, involving a trip visiting relatives somewhere, in the single family vehicle.

tunetopper Pernicious Gol… Tue, 05/22/2018 - 12:21 Permalink

CNBC mavens like Cramer drone on and on and on about specialty retail stocks.  Why dont they try to understand that industrials and chemical / engineering companies are the ones that will get the US out of the ditch and talk about those types of companies. Its like talking about a corner branch of B of A--- it just doesnt matter-- its counter -productive.. Cramer is all up in the ass of Target, Macys, The Gap and LuLuLemon.  It makes one wonder what he really knows .... about anything.  I pity those college grads that had to sit thru his bullshit  at graduation. Where was it Bucknell?  They'll grow up to be better -off if they can forget whtever the hell he said.

In reply to by Pernicious Gol…

platyops Tue, 05/22/2018 - 00:28 Permalink

The U.S. dollar needs to be backed by gold and silver. Until that happens middle class Americans are on the road to poverty.

 

Keep Stacking!

Silver Savior Tue, 05/22/2018 - 01:50 Permalink

I would say they are doing a great job with causing inflation. Hyper inflation is a certanty. Just a matter of when. It just makes sense to have your money in assets that appreciate under the circumstances. 

Kokulakai Tue, 05/22/2018 - 05:41 Permalink

Debt crises are a concoction.

There is never enough fiat created to retire the debt, and the interest it initiates.

When lending slows, continued interest payments disproportionately decrease the money supply.

The solution is more debt, including additional unfunded interest.

fbazzrea Tue, 05/22/2018 - 11:42 Permalink

as a side note to the $2 trillion the banksters have on deposit with the Fed receiving their escalating overnight interest rate, i wonder where would be a better place to hold cash ready for deployment into assets and bonds after the next manipulated crash?

hmmmmmm... no risk but still earning interest? i thought interest was payment in exchange for accepting risks?

no risk = no interest. oh wait... 

if you're complicit with the other money monopolists unaccountable to the U.S. citizens because our Congress and Senate are completely captured, you can do what you want.

repeal the uptick rule, greenlighting naked shorts. pay interest on reserve reqts., manipulate markets and bonds to best serve your agenda.

it's good to be king...

ZeroNello Tue, 05/22/2018 - 13:00 Permalink

Recall the late 1960's 2.0% target and Nixon's wage-price controls when it exceeded 3%.  Inflation is based upon aggregate expectations by consumers, business and individuals.  My thesis is that we are experiencing the mirror image of the 1970's inflation biased stagflation with the 2000's deflation bias stagflation.  Have a "on the one hand" and "then the other" kind of day.  Cheers.