This article was written by Brandon Smith and originally published at Birch Gold Group
The signs are already present and obvious, but the overall economic picture probably won’t be acknowledged in the mainstream until the situation becomes much worse (as if it’s not bad enough). It’s a problem that arises at the onset of every historic financial crisis – Mainstream economists and commentators lie to the public about the chances of recovery, constantly giving false reassurances and lulling people back to sleep. Even now with price inflation pummeling the average consumer they tell us that there is nothing to worry about. The Federal Reserve’s “soft landing” is on the way.
I remember in 2007 right before the epic derivatives collapse when media pundits were applauding the US housing market and predicting even greater highs in sales and in valuations. I had only been writing economic analysis for about a year, but I remember thinking that the overt display of optimism felt like compensation for something. It seemed as if they were trying to pull the wool over the eyes of the public in the hopes that if people just believed hard enough that all was well then the fantasy could be manifested into reality. Unfortunately, that’s not how economics works.
Supply and demand, debt and deficit, money velocity and inflation; these things cannot be ignored. If the system is out of balance, collapse will set its ugly foot down somewhere and there’s nothing anyone including central banks can do about it. In fact, there are times when they deliberately ENGINEER collapse.
This is the situation we are currently in today as 2022 comes to a close. The Fed is in the midst of a rather aggressive rate hike program in a “fight” against the stagflationary crisis that they created through years of fiat stimulus measures. The problem is that the higher interest rates are not bringing prices down, nor are they really slowing stock market speculation. Easy money has been too entrenched for far too long, which means a hard landing is the most likely scenario.
In the early 2000s the Fed had been engaged in artificially low interest rates which inflated the housing and derivatives bubble. In 2004, they shifted into a tightening process. Rates in 2004 were at 1% and by 2006 they rose to over 5%. This is when cracks began to appear in the credit structure, with 4.5% – 5.5% being the magic cutoff point before debt became too expensive for the system to continue the charade. By 2007/2008 the nation witnessed an exponential implosion of credit, setting off the biggest money printing bonanza in US history in order to save the banking sector, at least for a time.
Since nothing was actually fixed by the Fed back then, I will continue to use the 5% funds rate as a marker for when we will see another major contraction. The difference this time is that the central bank does not have the option to flood the economy with more fiat, at least not without immediately triggering a larger stagflationary spiral. I am also operating on the premise that the Fed WANTS a crash at this time.
As I noted in my article ‘The Fed Is Taking The Punch Bowl Away – But The Inflation Crisis Will Continue To Grow’, published in May:
“Mainstream financial commentators want to believe the Fed will capitulate because they desperately want the party in stock markets to continue, but the party is over. Sure, there will be moments when the markets rally based on nothing more than a word or two from a Fed official planting false hopes, but this will become rare. Ultimately, the Fed has taken away the punch bowl and it’s not coming back. They have the perfect excuse to kill the economy and kill markets in the form of a stagflationary disaster THEY CAUSED. Why would they reverse course now?”
My position is that the central bank has a global agenda that eclipses any national loyalty, and that it requires the decline of the American economy in order to expedite the introduction of Central Bank Digital Currencies (CBDCs) linked together through the IMF. So far they are getting exactly what they want and they are perfectly aware of what they are doing.
The Fed is expected to slow rate hikes to 50bps in December, but this is not assured with the jobs market still running hot from $8 trillion in covid stimulus the past two years (mostly lower paying retail and service sector jobs). By the February meeting of 2023 the Fed will be at or very near 5% interest rates, which I believe will help trigger a considerable plunge in markets and mass layoffs.
There are other factors to consider, though. One lesser known issue is the new 1% excise tax on stock buybacks planted within Biden’s Inflation Reduction Act. The measure, which goes into effect in January of next year, will not reduce prices on goods. That said, stock buybacks are still the primary means by which equities are kept afloat by major corporations. Over the past decade, buybacks have been funded by money borrowed from the Fed at near zero interest – essentially free money. Now, the easy money party is about to end.
The 1% excise tax added on top of a 5% Fed funds rate creates a 6% millstone on any money borrowed to finance future buybacks. This cost is going to be far too high and buybacks will falter. Meaning, stock markets will also stop, and drop. It will likely take two or three months before the tax and the rate hikes create a visible effect on markets. This would put our time frame for contraction around March or April of 2023.
Inflation is not going anywhere anytime soon, however. The underlying problem of energy prices needs to be considered as they contribute to further supply chain stress.
Think about this for a moment: The current reduction in oil prices and energy is artificial and government driven, not supply and demand driven. Oil prices in the US are being kept down by Joe Biden’s constant supply dumps from the strategic reserves. Eventually Biden is going to run out of oil to drop on markets and he will have to replenish those reserves at a much higher cost.
Furthermore, oil and energy prices are being kept down because of China’s suspiciously bizarre Zero Covid policy, which is slowing their economy to a crawl and reducing oil usage to a minimum. With public riots escalating, the CCP will probably seek to ease conditions as a means to placate dissent, playing a game of release the steam valve. A reopening by early next year is on the way, with a number of controls still in place of course.
As soon as China reopens, oil prices will skyrocket once again on the global market.
Then, there is the war in Ukraine and the ongoing sanctions against Russia. Europe is about to face the worst winter in decades with natural gas supplies severely limited and the cost of power for manufacturing no longer tenable. Their only hope is for mild temperatures for the rest of the season. If the current trend continues, production in Europe will be throttled, causing chaos in the global supply chain.
High energy prices and supply chain disruptions will mean ongoing inflated prices in goods and services well into 2023, even with a contraction in jobs markets and stock markets. I will be publishing an article soon with a working theory on how the US could actually stop inflation without crushing the rest of the economy. The model would require cooperation from leaders at the state level, though, along with a number of business interests that focus on necessities. In the meantime, I suggest readers stock provision whenever possible and organize within their local communities before next April.
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“””…China reopens…”””
Well, it is not going to happen in the nearest future. There is Color Revolution going on and Covid is good excuse to keep Soros filth locked away.
Chia reopening comes after US abandons regime change. When this happens nobody knows.
It will, starting next month. It will be a controlled reopening with restrictions loosened and certain quarantines lifted. That doesn’t mean they won’t go back to lockdowns later, but this is going to happen. Watch and see.
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Thats great..I actually opened a twitter account just to see, but to be honest I dont really access it much. Tons to do and no time to loose.
I agree. China will reopen – and is in process of doing that. They have to if they want to manufacture etc. I don’t know why that poster was thinking otherwise. Makes no sense. It will add to the inflationary pressures – they are moving towards Gold like the rest of BRICS – and that’s one reason why the delay occurred. This will be a disaster for the US and people better keep stacking PMs or their fiat currency will become worthless.
Its Dec 17th, sounds like you called it… China has placated the protestors
Damn you called this to the T well played Brandon.
—It’s a good point about the Covid Stimulus in relation to the job market here in the US. I knew damn well there had to be funny money involved in it somewhere. Our job market is about the only thing keeping America’s economy off the ledge. Am very curious about China’s motives with Zero Covid. At face value it doesn’t make any sense.
Great article sir
Is every popular revolt now a “Color revolution”? Maybe, the Chinese have just had enough of the lunatics in Beijing killing them slowly with pointless lockdowns for what even they know is just another flu-type virus. Sometimes a cat is just a cat!
The M2 money supply in the US has peaked and is heading lower now. Historically, a rare and quite stunning development. Will this trigger the collapse of the everything bubble? Please see: https://fred.stlouisfed.org/series/M2SL
“I suggest readers stock provision whenever possible and organize within their local communities before next April.”
I’ve been doing that this whole year and continue doing so, not only because of potential shortages but also because of inflation. Canned goods and dry foods are the way to go and NO you don’t have to spend a fortune. Stay away from the survival meals, they are 5x more expensive and aren’t as healthy.
Loading up on canned beans, tuna fish, canned vegetables, rice, peanut butter, preserves and jams are much healthier choices and will cost your family a whole lot less. In fact, I am off to my local Aldi’s later today to stock up on more stuff.
I suggest buying a Sun Oven, a manual flour mill and a half dozen buckets of hard white winter wheat…man does not live by bread alone, but it certainly makes life better.
This is just common sense. Hamburger meat has more than doubled in price since 2020. I started canning meats then. Same for flour. I have bags of flour inside plastic bags in my freezer. I live near several U-Pick farms and have my own fruit trees plus a little garden. My pantry is full. What has a 401K done in these two years?
Sure, my savings are short term, but I am replenishing my supplies with items on sale. No electricity? That will be inconvenient, but not a real problem. I have plenty to do here on the farm.
Agree, I’m in Florida, and I always looks for BOGO Canned goods, chicken, and rice at Publix. I also bought six months of freeze dried food from My Patriot Supply. My birth mom is a big fan of this board and keeps me posted on what to look for.
Another tip is loading up on a small butane camper stove and stocking up on butane refills. That came in handy for me when the lights went out during Hurricane Irma.
When you read this piece by Paul Craig Roberts, you can’t help but come to the conclusion that Putin is in on the game. It’s too bad that PCR hasn’t figured it out yet.
https://www.paulcraigroberts.org/2022/12/08/expect-more-widening-of-the-ukraine-conflict/
The Fed is no longer playing ball with the Globalists. Raising interest rates is proof of that. Tough times ahead? Yep. No way out of that.
Actually, it’s the opposite. The Fed is doing EXACTLY as it is told by the IMF, which has been demanding that they continue to RAISE RATES:
https://www.voanews.com/a/imf-chief-wants-central-banks-to-keep-raising-rates-to-hit-neutral-level/6806007.html
I prefer your take than that of Tom Luongo who is convinced that the Fed is the white hat fighting to save us from Davos.
Yes, I don’t know where he gets that idea, there’s no evidence to support it. People really want to believe that there’s some national government or institution out there that’s going to do the fighting for them. It’s just not reality.
The Fed is not the only one to blame for the 2008 debacle. My book “It’s Over” written in 2009 explained the damage done by “Greenshield” which was a government program mandating low mortgage rates for blacks. It’s happening again right now as blacks in CA, NY and other states are demanding reparations. Black victimhood is perpetual.
You are right few talk about the real cause
“The signs are already present and obvious, but the overall economic picture probably won’t be acknowledged in the mainstream until the situation becomes much worse (as if it’s not bad enough).”
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Our fake conjured ‘money’ still has some buying power. And the Financial House-of-Cards will stumble along until one day when The (Old) Fake Conjured Money no longer has any purchasing power left.
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Surely the Financial Faux gods Among Us know that day is coming. And so… They have the next financial atrocity to unleash on We the People… the programmable, fiat, fake, controllable, monitored, cancel-able, Digital Government Currency as the new scam to replace the old scam now reaching its end.
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‘The Fed is in the midst of a rather aggressive rate hike program in a ‘fight’ against the stagflationary crisis that they created through years of fiat stimulus measures.”
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The (badly-misleadingly-named) ‘Fed’ is more at war with We the People than They are against any financial crisis. They have so devalued the dollar that it now ‘buys’ two cents worth of goods and services instead of the full dollar it bought in 1913. But it’s a good thing that no one knows that fact. Would be bad for the economic puppet show.
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“Inflation is not going anywhere anytime soon…”
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Inflation is not going to go away… period. It is too good a weapon against We the People. Even after They have forced the Mark of the Beast Digital Scam on us. Keep us poor and needy forever. That’s the ticket.
I agree. Looks like
2020 was the year of the planned COVID scamdemic,
2021 was the year that cryptos had their moonshot moment,
2022 was the year that cryptos came crashing back to reality, and
2023 will likely be remembered as the year that the whole financial house of cards came crashing down and CBCDs were installed.
“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”
― Vladimir Ilyich Lenin
Dr. Vernon Coleman lays out the dreary future of what awaits humanity if the conspirators win:
https://vernoncoleman.org/articles/third-all-jobs-will-disappear-2030-how-safe-your-job
You try and tell people this and they look at you as if you’re a nutter but this is the reality. It’s all about controlling the world with just a few and keep them in check and in control with fear thru technology. Killer robots, digital cash, social credit score.
Get out of line and the robots will come after you. If they don’t take you out, you will be cutoff from the system and starve. That’s when they will wait until you are begging to let back in. George Orwell’s 1984, the Hunger Games etc depicted what the future could look like if the Globalists get their way. Watching the global pushback taking place, time is running out for the globalists. Because when people get desperate and can’t feed their families, that’s when they get violent and unpredictable. That is why all these elections were possibly rigged and not only in the USA. The WEF globalists have been trying to remove the opposition to replace it with their utopia.
I think Coleman is too pessimistic. The globalists will fail – albeit not before there is a lot of blood spilt. Large chunks of the world are already telling Davos to get lost. Of course, that doesn’t mean that places like Russia, China or the Saudis have anything much better to offer the common man, but at least it means that there won’t be one centralized global power.
Brandon, any thoughts on the price of silver when this contraction/collapse occurs next spring?
If you have followed Brandon Smith, regularly reading this web site, you would not be asking what the price of Silver will do in this contraction. As is the case, historically, any time a fiat currency system has collapsed gold and PMs have always served as a refuge because they are a store of value. Our current situation is no different. As gold increases in value silver”s rises 3 times as fast. The difference between a global currency collapse and a sovereign collapse is the lack of a reserve fiat currency henceforth the desire to implement a global digital currency but it’s not for the benefit of it’s users rather for the issuers. They want control. Make no mistake, PMs, hard assets and tradable goods and services are what will “save your bacon” and don’t underestimate the power of organizing on a community bases. Just to be clear silver will benefit handsomely since it is a PM.
I’d suggest also investing in brass…lots of it. Just sayin’
I am so sick and tired of these so called ” financial advise” radio talk show hosts. They consistently fill the airwaves with their ridiculous commentary usually pointing out the obvious, but, sugar coating everything by saying the Fed is trying to fight the inflation that it created. Nothing could be further from the truth. The worst is when the talk about how to manage an IRA or a 401k contributors call into the show saying they are down 66% in a stock that is part of their IRA. The usual advise is to simply abandon the stock. What they should be saying is don’t invest in an IRA or 401k where it’s like buying a car that only drives forward with no reverse. You should be shorting a stock when it’s going down but with 401ks and IRAs you can’t do that.
Agree with all of the author’s post , except one item. Price of gas IS creating demand destruction. Current consumption rates (according to Statista) shows it below 2019 pre – pandemic rate. Everybody I know is driving, or at least trying to drive less. More people and vehicles on the road after being shut in with nowhere to go after economy re-opens and there is less consumption?
Not enough demand destruction to drive prices down a couple dollars a gallon. If that were the case then Biden wouldn’t be dumping all the oil from the strategic reserves onto the market. He wouldn’t need to. No, when China reopens prices will rise again. Also, keep in mind that demand is not the only determinant of oil prices – The decline of the dollar can also drive up prices regardless because oil is sold internationally in dollars.
“Europe is about to face the worst winter in decades with natural gas supplies severely limited and the cost of power for manufacturing no longer tenable. ” Thank you for this article Brandon, as always thourougly written.
hi brandon!
You know that you also have a lot of readers and followeres from the EUdssr (not only because i have been recommending your site to everyone for probably 10 years).
Maybe you could share your view with us from time to time, what you expect for europe in the short and medium term.
Small short updates (maybe on Twitter) would also be very helpful.
Of course your focus is on the usa, but your clear view refers to the entire world, so you will also know what’s going on here.
I’m not the only one who would be extremely grateful!
thanks a lot and kind regards
The globalists are flat broke, and the Fed no longer has the ability to print money.
Uh, no, the globalists are not broke, they own half the world’s wealth. However, the Fed has stopped printing money – they are doing it on purpose to create a crash.
Don’t forget the mastermind or puppeteer behind the curtain i.e. the BIS.
And as you wrote in one of your previous articles a few years ago, Brandon: “The worst part is that the central bankers know exactly what they are doing.” Right, clearly!
Also, I believe 2023 should be a crucial year for the globalists and their Evil Agenda.
These 3 years: 2021,2022,2023 appeared in the Economist’s 2022 special edition(“The World ahead 2022”).
After CV-19, Ukraine war: “Cyber Polygon” or another global event – triggered or engineered – in 2023?
2 more things about Europe – and Switzerland where I live:
1) Credit Suisse has just been “temporarily saved” by asking for help from its main rivals/competitors, including UBS, Citi, JP Morgan, Italy Unicredit, etc. This was not seen in 2008-2009; it is unprecedented!
2) French citizens have been encouraged to turn in their guns to public authorities.
This does not look good..
It’s pretty obvious that the European kettle is about to reach boiling point. There are protests and strikes everywhere. Inflation and EU community policies are destroying most people’s ability to survive, and that includes businesses.
The strikes are worthless because if their demands for salary increases were to be approved, it would only serve to further increase inflation. The goal posts will forever move away from them. This is a catch 22 situation that will soon lead to civil war.
I’m an American in Paris. It’s shocking, really, how blasé are the locals, how utterly unconcerned they are about their own situation which includes periodic times when the heat isn’t on and ridiculously priced food. A loaf of bread — American-style bread — is about 7 dollars. I don’t drive here so I don’t know the price of gas/diesel.
I wish the people would awaken, protest and revolt, but they don’t. Only the World Cup elicits a passionate response. Bread and circuses …