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Lying About The Economy Will Make The Crash Worse

quoth the raven's Photo
by quoth the raven
Monday, Aug 01, 2022 - 12:40

Submitted by QTR's Fringe Finance

I really don’t know how to describe the disturbing trend over the last few months of the Biden administration, along with Treasury Secretary Janet Yellen, simply lying to the American people about the economy.

Months worth of political spin has culminated in embarrassing recent attempts to redefine the word “recession”: a futile effort to pull the wool over an American public that is growing increasingly suspect both Biden and Yellen’s competence to be overseeing the the country, and the economy, respectively.

By now, the administration’s pathetic falsehood of a narrative about our economy has been called out, ridiculed, dismantled and generally beaten to death by anyone with a shred of common sense.

However, there is something far more important that people aren’t talking about: the administration lying about the health of the economy could wind up exacerbating any financial crisis that we have in the near future.

Put simply, the more you tell people that “everything is fine” when it isn’t, the more surprised and shocked they are going to be when markets start to panic.

I don’t think a market crash is an outrageous scenario that has no chance of happening, either. I noted in my latest portfolio update that I thought the market could have a short-term rally based on the idea of participants thinking that the Fed is preparing to pivot.

But over the course of the longer-term, the rate hikes that have already been put into place are going to eventually make their way to the economic-narrative-foreground in the form of huge forthcoming aftershocks throughout the economy.

And so everybody who has been buying the dip over the last two weeks, whether it is out of FOMO, being forced out of short positions or a genuine belief that equities are now cheap, may still have to face pronounced upcoming market shocks.

The first shock will come in the form of the rate hikes that have already happened.

The Fed has hiked rates so quickly that the economy - with its record amount of outstanding debt - still has yet to catch up. Over the next quarter or two, we’re going to see the real effects of the 2% worth of recent rate hikes play out in the economy. And as Zero Hedge points out, it’s coming at the worst possible time: as the personal savings rate has collapsed to 5.1%, its lowest since August 2008.

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Source: Zero Hedge

It is this delayed reaction that is, in my opinion, going to cause a repeat of December 2018’s market sell off. For comparison, the Fed hiked at nowhere near the current pace leading up to 2018. The hikes leading up to 2018 took almost 3 years to reach 2.25-2.5%.

This is why I believe an upcoming selloff will happen quickly and catch everyone off guard. After all, we have hiked to 2.25%-2.5% this time in just five months.

The second shock that people could be in for is if the Fed decides to hold its nerve and doesn’t begin discussing a pivot. Language out of the Fed...(READ THIS FULL ARTICLE, FREE, HERE).
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