by Phil Martin, Founder & Co-CEO
The US Federal Reserve independently, for 13 years now, put the US Economy and the Dollar in such a Catch 22, there is nowhere to hide. It has been manipulating the money supply with actions we’ve never seen in history. Through 4 waves of QE(each one bigger than the next), Overnight Repo, the purchasing of Corporate, Municipal and any other kinds of Bonds you can think of. The result is completely skewed stock valuations across every sector. The US Economy is no longer a free market system because of the Fed’s intervention. We have now had 13 years of 0% interest rate monetary Policy which in itself causes inflation. Add all the QE and the artificial money the Fed dumped (Inflation by definition) into circulation, we are finally seeing the consequences of those policies in everyday life on the streets of America with skyrocketing prices. This wasn’t caused by Bush, Obama, Trump or Biden. It also wasn’t a COVID related event either. To suggest this was transitory due to COVID is smokescreen and was outrageous the second Chairman Powell stated it. This inflation and the monetizing of debt started with Greenspan, expanded by Bernanke and Yellen was the Turbofan money printing that put any future Chairman completely against the wall. We’ve created a Ponzi and the Dollar will face Judgment Day very soon.
The reality is, in order to slow inflation, you first need to stop printing money. Then, the Fed rate needs to be at least 1 or 2% above CPI. Here comes the Catch 22… The current rate of inflation is 7.2%. Can you imagine the defaults across every sector, stock market indices, bonds, etc… if you were to raise the Fed rate to 8 or 9%? Catastrophic right? This hasn’t happened overnight. If the CPI were calculated today like it was in the 70’s, current inflation would be around 17%. They have been arbitrarily removing or modifying important elements and Metrics that measure real consumer pricing in order to manipulate markets favorably(and artificially). The economy, as a result appears to be far better performing than it actually is. The QE and various bond purchasing programs have not only diluted the dollars purchasing power globally, but artificially pumped up the stock market as well. There is a clear consensus among macro economists that we are in the midst of a dangerous recession, and it’s being cloaked by the Central Banks.
The Fed is now pretending to fight inflation when they simply can’t! The only thing small rate increases will do is accelerate an inflationary Tsunami bringing on a stock market crash much worse than ’08. The reason being, we never actually fixed the ’08 problem, we’ve just made it worse by kicking the can down the road. Inflation will get far worse in ’22 and because of sanctions being put all over the world now, I’m forecasting even more dire supply chain shortages. The Pandemic may have accelerated us towards this economic precipice, but it was not the cause. It wasn’t any administration either, it was the Fed. The Fed acts alone and there isn’t a thing anyone can do about it. They alone have put us in this mess and the only way to solve this is to eliminate the Fed, period. The free market in the US has everything built-in so there is no manipulation of interest rates. It’s market driven, pure and simple.
In summary, even if they raise the fed rate by a total of say 2% this year, it’s nowhere close to have any effect at all on rising prices. However, If they increase it by even that much, they’ll have to print more money to cover the Treasury’s obligations. Saying they will start tapering QE is a farce because the US will not default on its debts, ever. They will have to “untaper”, re-introduce and accelerate QE and drop the rate back to zero or even negative. In the words of many colleagues, You just can’t taper a Ponzi scheme!
We’re screwed! Thanks Fed, thanks a lot!
I have been talking about this for some time and I knew this was coming. Have a read of an article I wrote back in September that touches on this and much more. I do provide some safe havens to hedge yourself from the upcoming correction and super bubble. There is a reasonable strategy to take to soften the blow. Here is the link and feel free to message me if you have any questions.
https://iversenmartin.com/articles/f/mania-in-markets-bubbles-galore-save-yourself-from-the-monster
Phil Martin
Founder, Co-CEO