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This article was written by Brandon Smith and originally published at Birch Gold Group
In 2022 there was considerable debate among alternative economists what the Federal Reserve was likely to do in the face of rising stagflation. There were people who argued that the Fed would capitulate to stock market demands, stop raising interest rates and return to QE. These analysts operated on the assumption that the central bank WANTS to save the US economy from substantial deflationary crisis and that they will happily print money forever in order to delay such an event.
Some of us, however, understand that the Fed is not loyal to the US economy, nor is it necessarily interested in self preservation as an institution. In 2022 in my article ‘It’s A Fact That Needs Repeating: The Federal Reserve Is A Suicide Bomber’ I predicted:
“This leads us to the final question – What happens next? That’s easy to answer: The fed continues to hike rates well into next year and will not reverse course or capitulate and return to stimulus. The dovish predictions were wrong. The people that said the Fed would not raise rates were wrong. The people that said the Fed would never remove support from stock markets were wrong. This process is ongoing and the effects will grow as the months pass, but those that were hoping for a manic return to the days of bailouts and QE are going to be deeply disappointed.”
This prediction proved correct. I noted at the time that the Fed is not following its own program, it’s following a global program coordinated by the IMF and BIS. In order to understand why the Fed does the things it does, one must accept that they don’t care about the current world order. They care about facilitating a new world order.
Of course, part of that agenda requires that the central bankers never receive blame for their role in any economic crisis. They have no problem blowing up the system as long as there’s a convenient scapegoat. They’ve done it before and they’ll do it again.
I usually don’t put much energy into tracking stocks because I see them as a side show. Equities are primarily built on delusions, false hopes and unchecked fiat and the bubble will pop when those delusions are inevitably dashed by reality. Stock markets are not a leading indicator; they are a trailing indicator and they crash long after numerous other alarms have been triggered. That said, every once in a while the smoke and mirrors lift and you can get a glimpse of what is really happening behind the scenes.
The central bank has removed the primary backstop supporting US and European markets – The low interest rates that were feeding cheap money into corporate buybacks. Despite endless spin and false data from the Biden Administration the deflationary side of the crisis is starting to rear its ugly head.
A weaker-than-expected jobs report last week has fueled concerns about a potential economic recession and calls for an interest rate cut. Employers hired 114,000 workers last month, falling well short of economist expectations of 185,000 jobs, U.S. Bureau of Labor Statistics data showed. The unemployment rate climbed to 4.3%, the highest level since October 2021. It’s only going to get worse from now on and I wouldn’t be surprised to see an unemployment avalanche in 2025.
Keep in mind that BLS jobs data has been rigged by the Biden White House for years; the majority of jobs “created” during Biden’s term are low wage part-time jobs and most have been going to illegal immigrants, not to American citizens. The same illegal immigrants that Biden has allowed into the country through open border and amnesty policies.
This trend is only going accelerate by winter. Why? Because the effects of the high interest rates are taking hold. It happens slow at first, then all at once. But how have stocks remained so high during this time period? A recent market shock may help us to understand…
As noted, the August stock slump has been partly driven by weaker-than-expected U.S. economic data at the end of last week. The readings led investors to worry that the Federal Reserve may be behind the curve in cutting interest rates to fend off a recession. But why does the Fed continue to keep rates high if this is the case?
There are two reasons.
First, as I have mentioned over and over since 2018, the end of QE and the raising of interest rates is a Catch-22; a trap. Not for the Fed, but for the US economy. Our financial system has become so addicted to cheap money from the central bank that it can barely function without it. We are seeing the addict begin to crash. Covid stimulus held up the system for another few years, but now that hit of sweet helicopter money is fading and the high is over.
At the same time we’re being crushed with a stagflationary hydraulic press. Prices continue to climb on most necessities and the cumulative inflation is around 30% (officially) on average since 2021. Compare grocery receipts from 2020 to today, though, and you’ll find a 30% to 100% increase in prices on most necessary goods and services.
The establishment (and the DNC) has been operating on the narrative that inflation has been defeated. The Fed knows that this is a lie. The moment they cut rates inflation will spike again and the illusion will be exposed. There’s FAR too many dollars floating around chasing too few goods. For those that believe a rate cut is in the works to support the Kamala Harris campaign, I would suggest such a move might actually hurt her chances (whatever those chances may be) because her entire economic platform requires doubling down on the “success” of Bidenomics. If CPI spikes again in October then her campaign is sunk.
Of course, over 54% of mainstream economists and investors polled now expect a rate cut next month and some Fed officials have mentioned the possibility. I remain doubtful, but it will certainly make the election cycle even more interesting if they do.
The second issue is what appears to be a “carry trade trap.”
Carry trades refer to operations in which investors borrow in a currency with low interest rates, such as the Japanese yen, and reinvest the proceeds in higher-yielding assets elsewhere (the US). The strategy is a considerable driver of US stock markets and has kept stocks alive despite the Fed’s removal of QE.
This month’s stock plunge was triggered by fears that the Bank of Japan might hike interest rates, coupled with expectations that the Fed will cut rates in the near term due to the recession threat. This would kill the carry trade that has kept stocks going. To prevent a destructive carry trade unwind the Fed would have to coordinate with the BOJ and introduce a new stimulus program to soften the blow. But as I mentioned above, if the Fed returns to QE inflation will skyrocket yet again.
The public will demand an explanation as to how it’s possible for there to be deflation in markets and jobs and inflation in prices all at the same time? The Fed won’t have answers for them. It’s a Catch-22 on top of a Catch-22.
I believe there is no way out of this situation and that central banks deliberately maneuvered the US into this predicament. The only thing left for them to do is pull the plug when the timing is most advantageous. After the elections makes the most sense, especially if conservatives come out on top and there is a red sweep in 2025. Then, the whole mess can be wrapped up and thrown in their laps.
One thing the events of this month prove is that the system is so unstable that even a hint of a change in the status quo could mean disaster. Don’t assume that banks will keep trying to kick the can down the road; they’re operating on a timeline that serves the interests of the global establishment, not the American public.
Our economy is on a decades-long path to total collapse. And no election can completely stop what is coming! Which is why protecting your 401(k) or IRA is more critical than ever. With a physical gold IRA, you get an easy and tax-deferred way to safeguard your wealth with tangible assets. To learn more, click here to get your FREE info kit on Gold IRAs from Birch Gold Group.
Very insightful, per usual.
Let’s say the Federal Reserve does “pull the plug” after the November (s)elections cycle, say in the wake of another Trump Presidency and further conservative gains in the Congress, etc.
Do you believe they would do so in the first fiscal quarter of 2025 or later in the year?
I think they would immediately jump into rate cuts, then, when inflation kicks back in I suspect they will return to rate hikes and raise them continuously until the market breaks. It’s what they did in the 1970s and we may be following a similar pattern.
Brandon don’t you think the Fed Res already know whose going to be president?
Probably. Why is that relevant? They still have to adjust policy one way or another after the next president is in office.
“Why is that relevant?” Exactly! Thanks for your reply Brandon.
“… banks… operating on a timeline that serves the interests of the global establishment, not the American public.”
.
Let’s go through the entire list of institutions today that DO serve the interests of We the American People.
.
Well there’s… there’s… uh…
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But of course we’ve got… uh… uh…
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And we can always count on… on, ah…
.
Damn. There’s got to be at least one, right?
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So it’s got to be… uh..
.
(Oh crap. Check back again in a week or two or so, maybe?…)
Outstanding post, Brandon. It certainly appears that many of the pieces for a collapse of the economy have been put into place. I’m not sure about timing – maybe the Fed just waits until things move, and then comes up with a catalyst to explain things – sort of like the day to day news flow from CNBC.
Along with Fed rates, I believe liquidity in the markets and weakening/strengthening the dollar are a couple of other levers the Fed uses to push things around. In 2008 prior to the election the markets started falling, and then later on Obama made a great call in March of 2009 to buy again. Throw in some civil unrest, and it makes predicting a timeline for much of this pretty tough.
The end goal seems pretty clear though. But as you’ve mentioned in other posts, then the important conflict with the globalists moves into the next stage.
This article and the previous one on Starmer basically tie in with one another on the theme that there is an orchestrated attempt to collapse the system and usher in a one world government controlled by the UN.
As if we needed more proof, Kamala Harris and the DNC want to introduce price controls and to tax the greedy corporations as if that worked well in the past. All it did was collapse their nations.
Just ask Venezuela, the former Soviet Union and Argentina how well that worked out for them. We also saw how well that worked for Richard Nixon back in the 70’s. The end result will be, shortages and more out of control inflation for the US. I also expect more gun control legislation and talk about why we don’t need the 2nd amendment when just the opposite will be true. Because it would give the federal government all the power over violence.
The US doesn’t need an enemy when the enemy is within and doing a mighty fine job of wrecking a once great nation.
Brandon, great article as usual. I read it on Lew Rockwell and then came here to leave a comment. You are right about the stock market being a lagging indicator. I saw the gasoline prices at the pump going up in late 2007 and pulled my 401k funds out of stocks and put them in bonds and money market. I lost about 7% over the next couple of years but my co-workers that stayed in stock funds lost 30% to 40%. I think they got a lot of it back but I didn’t have time before retirement so I’m glad I switched. I glance at the stock market now and then but I don’t own any stocks. I think the price of oil shooting up will happen before stocks crash.
Great article, and answers a few questions I’ve been asking. Most people believe the Fed should have cut rates as early as June, assuming they wanted to keep markets afloat (which, as you’ve mentioned many times before, is obviously not their mandate). Cutting rates isn’t the right thing to do if “official data” is anything to go by, but it would be expedient for artificially and temporarily easing market pressure, so it is suspicious that they’ve waited this long. A September rate cut is being talked about as a foregone conclusion; but what if rates are held steady or even hiked? The markets are setting themselves up for disappointment.
On a related subject, what do you make of Trump’s recent assertion that the president should have “some say” insofar as the Fed’s policy is concerned? What I find most interesting is how the media has been framing it and the timing of it all. Like trying to pass the buck to Trump in the event he is reelected, or worse yet, him knowingly setting himself up as a whipping boy for the imminent economic crisis.
> https://www.reuters.com/world/us/how-trump-could-influence-fed-2024-08-09/
> https://www.wsj.com/politics/elections/trumps-plans-stir-fears-for-fed-independence-inflation-689bc113
> https://www.youtube.com/watch?v=rGM5cpa_MfM
> https://fortune.com/2024/08/19/trump-fed-president-interest-rate-cut-housing-policy/
“At the same time we’re being crushed with a stagflationary hydraulic press. Prices continue to climb on most necessities and the cumulative inflation is around 30% (officially) on average since 2021. Compare grocery receipts from 2020 to today, though, and you’ll find a 30% to 100% increase in prices on most necessary goods and services.“
This is why I think it’s different this time. Covid lockdowns scared me because my instincts tell me shocking the supply chains is a bad idea. That’s when I started taking this shit seriously.
I get the feeling people are stressed. That inflation is in everything that really counts (Necessary Goods). It’s very troubling that the US and our greatest ally continues to cross redline after redline in arrogant fashion. The voyeurs will tell you Putin/Iran etc won’t do anything. They can keep saying that until they finally do. It may only take once.
If war escalated in the ME and diesel went to $7 a gallon I have a pretty strong hunch that will be the end of the road. In prior recessions things must stabilize after finding their footing before we can grow again.
The stabilization that will be necessary today will NOT be measured in asset prices and dollars. It will be measured in human lives.
With our current system not suited to handle such hardship the fallout will be ugly. And nature will perform the stabilizing effects this time around. I also believe that nations who have not gone terminally insane understand this quite well. Am sure some of them are very nervous about it. The entire world will feel it. It’s just that some are better prepared to deal with it.
I believe there’s a good chance the markets begin to crash in September or October. The Puetz Crash window is either around lunar eclipse Sept 17, or the solar eclipse October 2. 7 days before or 3 days after. Puetz says it favors the lunar eclipse, which is usually after the solar eclipse, except this year it’s before. Maybe it’s just coincidences that the Puetz Window coincided with panic crashes of 1929, 1987, Hang Sen 1997, 2008.. FOMC is September 18. My guess is they’ll be lowering rates then, which as you mention will cause an unwind of the yen carry trade, just as raising the yen rates by a minuscule amount did last month. Many believe the carry trade is still alive and well. I believe it’s unwind will coincide with a panic.