This article was written by Brandon Smith and originally published at Birch Gold Group
The effective Federal Reserve funds rate (the EFFR) has been sitting at virtually zero for a long time now. It feels a little strange to think about the fact that it was 14 years ago when the central bank first helped to trigger the crash of 2008 and we are still dealing with the consequences of it today. I only started writing for the liberty movement two years before that. The amount of time that it takes for economic disasters to develop is well beyond the average person’s attention span. In fact, there are many people who are adults today that have no clue what happened in 2008 because they were in elementary school when it went down.
This is how the establishment is able to get away with the negative changes to our national standard of living – because these changes usually happen over the course of decades and almost no one notices.
That said, there comes a point in any financial collapse where the floor is as thin as it will ever get. When the next shoe drops it’s going to break right through along with all the furniture. At this stage there is no slow moving crash, everything goes all at once. We have already seen this scenario in action, and again, I don’t think very many people remember the event.
Here’s what most people have forgotten
In 2018 the Fed began hinting at the institution not only of rate hikes but also cuts to asset purchases and its balance sheet simultaneously. It’s important to understand that effective rates had been sitting near zero for almost a decade and cheap overnight loans from the central bank were feeding one of the longest running corporate stock buyback bonanzas in history. Stock buybacks and easy Fed money facilitated a near endless bull market rally in equities. The lack of real price discovery and the perpetual free-for-all was so bad that the mantra for stocks became “Buy the F#ing dip!”
The assumption was that the Fed was always going to step in to protect markets from falling. Why? Because they had done this for several years, creating one of the biggest spikes in the Dow and Nasdaq of all time. Why would they do anything different? But, in 2018, for short time we witnessed what would happen if the central bank was to take away the punch bowl and it was not pretty.
Closing in on mid-2018 the Fed began to hike rates and cut its balance sheet more aggressively. We had seen small intermittent rate hikes since 2015, but these had not coincided with asset cuts or changes in overnight loans to major banks and corporations. The markets immediately began to reverse more than we had seen in some time, gas prices jumped and the yield curve flattened after rates rose a mere 50 basis points. It didn’t take much to cause a panic among investors.
So, to be clear, the major business and investment framework of the U.S. has been so dependent on cheap credit from the Fed that even the tiniest increase in interest rates was enough to almost unhinge the entire system. Of course, bull market ticker trackers in the media missed the whole purpose of this exercise.
The Fed reversed course on hikes and their balance sheet in mid-2019, so the mainstream once again assumed that this meant the central bank would “never” allow markets to fall.
Back in 2018 the argument was that there was no need for the Fed to hike rates or drop assets because there was no imminent threat of inflation. The average economist and the media refused to acknowledge the many warning signs that high inflation was going to hit us in the near term. But the Fed knows exactly what it is doing and they understand that the trillions upon trillions of dollars they created out of thin air after the derivatives crisis will ultimately come back to bite the U.S. economy in the rear in the form of price inflation and stagflation.
Another interesting fact about the hikes of 2018 is that Jerome Powell had warned about the consequences of such actions years prior in 2012 during the October Fed meeting:
“…I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.” – Jerome Powell [emphasis added]
Yet, he signed off on the policy anyway once he became chairman. Why?
Because he was ordered to. Former Fed chairman Alan Greenspan once admitted that the central bank answers to no one in government, but this does not mean the Fed is independent. The Fed is only a part of a larger global central banking machine under the oversight of the Bank for International Settlements.
This is not “conspiracy theory,” it is simply reality. The notion that the Fed acts thoughtlessly, or that their goal is to keep the U.S. economy afloat is just not true. There are much bigger plans at play.
The next deliberately Engineered economic crisis
My position back then remains the same today: The rate hikes of 2018 were a test run for a more aggressive and deliberately engineered crisis down the road. The Fed has its own agenda, it does not care about protecting U.S. markets, nor does it even care about protecting the U.S. economy in general.
I hold that the Fed is a weapon for social and political change within America and part of its job is to greatly reduce the standard of living of the population while making it appear as if this decline is a “natural” consequence of the U.S. system.
Keep in mind that none other than Karl Marx was insistent that central banks were a primary pillar of a socialist/communist system and its ability to maintain control of the public. As Marx noted in his Manifesto Of The Communist Party written with Fredrick Engels, “despotic inroads on the rights of property” would be “unavoidable as a means of entirely revolutionizing the mode of production.” In other words, in order to meet their revolutionary goal, communists would need to destroy property rights.
Among his ten requirements for a communism government, number five reads:
“Centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.”
Control of the currency and credit framework means control of the population of any given nation because it allows a central authority to reduce the standard of living “scientifically.” That is to say, they can create economic decline or collapse out of thin air.
But why do this at all? Because financial desperation is the fastest way to create public dependence on a central authority.
Every collectivist regime in history has used poverty and near-starvation, or government rationing and management of production, as a means to keep their populations under control. This is nothing new but for some reason many people think this strategy will never be attempted in America. They think the establishment “needs” the American economy intact. They are simply delusional.
When the government and the elites behind government become everyone’s Mommy and Daddy and the sole providers for the means of survival, it is unlikely that the citizenry will try to rebel. That is to say, people rarely bite the hand that feeds them.
So, central banks and their corporate and political partners follow the Marxist model and seek to become the hand that feeds; by hook, by crook or by financial collapse if necessary.
I have covered this agenda of central banking and the Fed in many articles the past year, but what we now face is the inevitability of Fed rate hikes. Yet I still see many analysts in the mainstream and in the alternative media who refuse to admit the chances are high that the central bankers will again engage in a rate hike demolition, only this time they are unlikely to have mercy as they did in 2018.
What has changed since the last tightening cycle? Well, in 2022 we now have immediate and obvious stagflation with price inflation of most necessities hitting 40-year highs. This is something the alternative media has been warning about for some time and now the moment has arrived. Forget about the CPI print, it’s truly irrelevant and doesn’t even account for food, housing and energy. What matters is the average American’s wallet and how much it is being drained.
Unfortunately, it’s only going to get worse. The Fed has created a Catch-22 situation in which inflation will hit hard regardless of whether they hike rates.
Get ready for the yield curve to flatten again and for long term Treasury bonds to be dropped by most foreign investors. Also, get ready for the value of the dollar to plummet further, after a short initial spike, as stocks fall.
I believe the Fed will stick with rate hikes this time because they have to at least be seen as “trying” to do something about inflation – the same inflation the Fed themselves created through over a decade of fiat money printing and easy credit.
Price inflation will be aggressive this year and going into next year regardless of what the Fed does. Costs are going to rise exponentially for most people. This does not mean that we will be dealing with Weimar-style inflation with wheelbarrows full of Benjamins to buy a loaf of bread’. I’m betting we would see government price controls before that happens (which will trigger mass shortages of goods).
However, it doesn’t take much in terms of price spikes to cause a breakdown. An increase of 50% in overall costs would crush a large number of U.S. households and make them desperate for aid, perhaps in the form of Universal Basic Income and ultimately a complete sea change over to some form of digital currency.
The Fed has used interest rate hikes into economic weakness in the past, including at the onset of the Great Depression. We have also seen the Fed increase interest rates as high as 12.3% as they did during the inflationary crisis of 1974. These hikes crushed a lot of small and medium businesses at the time. In fact, my own grandfather had expanded his trucking company with multiple vehicles and millions of dollars and a large amount of credit in the early 70s, only to have his business destroyed by skyrocketing interest rates. The 1970s stagflation crisis was nothing compared to what we now face.
Prepare today, because tomorrow will be too late
The conclusion is obvious – get prepared. Price inflation is already here and I believe climbing credit costs are on the way. Getting prepared means stocking staples now that you and your family use regularly. Buy at the lower prices of today so you don’t have to buy at the much higher prices of tomorrow. If you have debt I suggest dealing with it now if you can, and don’t take on any new debt if you can help it.
Do not expect that borrowing at fixed rates today will assure you fixed rates tomorrow.
Invest in commodities that don’t lose value to inflation, especially physical precious metals. There will come a time all too soon when street prices of gold and silver will explode far beyond the fake paper-gold markets.
Most importantly, organize with like-minded people in your community. Trade must decentralize and localize to survive stagflation, and each community is going to need networks of producers and marketplaces to facilitate the shift. We can no longer rely on the supply chain and the global economy; as a culture we will have to relearn how to provide for ourselves and our loved ones.
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I have been getting ready for this for decades now. On the other hand I will never be ready. I am too old now to swim to shore so I will go down with the ship.
The globalists used C-19 to accelerate the engineering of this inflation.
Being capable in maintaining our monthly burn without financial assistance that will require us to have digital ID’s and QR codes is probably the most important way in protecting our sovereignty as our resistance grows. It’s a lot easier to refuse a vaccine than financial assistance when we’re cornered into an inflationary liquidity trap.
Hey Brandon. How high you thinking fed funds rate goes? Especially if curve flattens, and 10 yr rises as I understand it per foreign dumping. Thanks
No clue. It could go higher than it did in the 1970’s considering our inflation problem is much larger than it was back then.
‘Invest in commodities that don’t lose value to inflation, especially physical precious metals. There will come a time all too soon when street prices of gold and silver will explode far beyond the fake paper-gold markets.
My question is, how will street prices be any different than the futures market of GLD and SLV? Does this not dictate the gold and silver prices here in the USA?
Is GLD and SLV rigged? If so, how so?
Market prices are dictated by global banks who control the flow of paper ETFs. Paper gold and silver GREATLY outweighs the amount of actual physical gold and silver in the world. Some traders estimate there are 150 paper ounces of silver for every 1 ounce of real silver. As inflation rises people will look for more physical, and when they realize that the paper market is a fraud, it will implode and the physical price will skyrocket.
I wonder if the Convoy for Freedom, was engineered or if not, will be used as an excuse for the collapse?
I don’t think so. It looks VERY organic to me.
Exploited, that is a definite possibility. I wouldn’t be surprised if they did exploit it.
I don’t know if it was engineered or not. I do know this. In 1973 Alexander Haig became the youngest 4 star General ever. His meteoric rise up the ladder continued as Chief of Staff for Nixon and Ford. Not stopping there, he became Reagan’s Secretary of State.
As he looked on at the peaceful protests of his day, he smugly said,
“Let them march all they want as long as they continue to pay their taxes.”
Wow, nice guy! As long as the tax $$$ kept coming in for his paycheck and future pensions, he cared not about the peaceful protests. Without the arrests of the masters of mayhem at the top of the pyramid of evil, the brave truckers strike may put and end to the mandates but it will not put and end to their evil
It is the military that gave an oath to defend the constitution from all enemies foreign and domestic. Haig knew he surely wasn’t going to arrest anyone.
Barring divine intervention, without a change of heart of today’s Generals ordering and carrying out arrests, the evil will continue. It would just remain to be seen what emergency they announce to the people next.
We don’t need the military to carry out arrests of the elites in some kind of coup – The people will do that for them when the time comes, and the time is near.
Thank you for taking the time to respond. You are one of the premier analysts and writers on the alternative media. I am proud to stand with you in this fight for freedom and against tyranny.
It would be impossible to engineer and no one who matters will blame truckers for a collapse that the government and central banks created. It is a common psyop used on the liberty movement to try to attribute every single mass rebellion to being a “false flag” conspiracy. It’s a way to diminish the accomplishments of so many people who fought back and sow seeds of doubt within the movement. They tried to do the same thing with Bundy Ranch and numerous other events where we won.
If many go under financial pressure they’re less capable to spend on wants. Needs would then become priorities. For those producing goods and services it might be difficult to decide what to offer.
That’s to increased costs I need to make more $. We just went over 10k in property taxes for the first time. Sure hope my 07 Tundra hangs in.
I’m getting into position to make live edge wooden stuff. Not sure how good an idea that is in this environment. Who needs a spice rack if they’re broke?
I’m building a cheap 50’x16’ structure to substitute as a growing tunnel. Anybody priced 1.5” tubing? I’m using cedar posts then putting in about 500 sq ft of raised beds. Seems important to finish this first then maybe go on to making wooden stuff. Just trying to make practical of the article.
Great article. Although I’ve been preparing the past couple years, the last few paragraphs still get me very anxious thinking about the upcoming supply chain disruptions.
@Brandon, I never understand why we should get rid of debt in an inflationary environment. Shouldn’t we “load up” on goods (silver, food, whatever) with our credit, since that money will lose value quickly?
In brief, ‘not YET’. The Fed has proved remarkably adept at snatching the rug out from under nearly everyone trying to front run them for quite a while.
To be sure, if you have extensive credit there will come a time when you’ll want to go ‘whole-hog’ on that…but only when the bona fides ‘tipping point’ has been reached, which is problematic for several reasons. The first lies in determining just WHEN that is occurring, the second center’s on the tandem of availability of goods vs your buying power via your credit at that point.
Anything which you currently lack which in your estimation is critical to your future well-being you should be efforting yourself (STRONGLY) to acquire WITHIN the framework of your existing finances…keeping your Powder (Credit) dry until it becomes evident that collapse is occuring. They’ve fooled many previously, so concentrate on the really important stuff first, even if you have to bite the bullet to do so in the here and now.
Look at what happened to many businesses with debt during the inflationary episode of the 1970’s. I covered this in the article.
@dipdooo, yes I agree you should load up on goods, but only using the existing cash you already have. The problem with using credit is that if things don’t hyperinflate, then you’re left with the debt you have to pay back which may bankrupt you. Also, I recall that Brandon previously pointed out several articles back that Yugoslavia raised the rates on fixed rate loans to match the rate of (hyper)inflation which severely screwed the borrower / debtors. If that happens here, then it’s BK for sure. So either way, you don’t want to be the debtor.
The Eliot Wave analysis of the markets – both very long term and short term, suggest we have either had a failed 5th wave up, that will start a collapse soon, or we are still correcting in a complex 4th wave. If the latter, then we would go up to a new all time high by the end of this year or early next year to complete the 5 th wave up. Then we’d have a crash like the Great Depression or more. If that is correct, then we’d have some kind of news from the Fed to justify that additional market rise.
Never seen much use for the Eliot Wave theories. They usually end up wrong, and when they are right which is rare it’s always coincidental. The central banks CREATE economic crash events – You can’t predict that by seeing patterns where there are none.
Johnathan More – Real Inflation Is Coming,The Fed Is Out Of Ammunition,Gold Destroys The Old System
The Fed could definitively withdraw the bowl of punch.
To my mind, globalist elites are going to speed the economic collapse this year .
About BIS – the Bank for International Settlements (Basel, Switzerland):
P.S: What if Economic Chaos officially begins in Europe? France or Italy…
Indeed, prepare us and quickly: Something huge and worst is coming.
I think the dollar will get a lot stronger if the Fed actually hikes. The ECB with its flawed euro and euromember states 100 percent depending on their central bank for financing their debts, make the situation in the Europe endlessly more dangerous than that in the US. The ECB is the most trapped central bank in the world. The euro is a political currency, which simply spells disaster. The dollar will be the last one standing.
The Euro is nowhere near as inflated as the dollar, so I would not put much faith in the idea that a struggling Euro will somehow make the dollar look better. Also, the Dollar index is essentially meaningless. What matters is price inflation and how many trillions of dollars held overseas will start flooding back into the US as long term treasury bonds implode due to a flattening yield curve. The dollar index might have an initial and very small spike as the fed increases rates, but this will do nothing to offset the collapse of the dollar’s real and dropping value on the street, in the stores and in trade with manufacturers.
Thanks for replying. Some questions:
1. If/when Russia invades Ukraine (and rightfully so), what will that do to the euro and the dollar? Given the capital flight to the US in previous world wars.
2. What would people overseas exchange their dollars for, when they start the “flooding back into the US”? Gold, euros, Bitcoin?
3. Given that there are trillions of USD denominated debt worldwide needing to be serviced, does that not create a floor under the USD?
4. Would not the Fed buy up all debt that flooded back into the US?
5. Why has the euro fallen against the USD over the last six months? Anything to do with the Fed raising interest rates, but the ECB being trapped?
6. If the inflating itself would collapse a currency, why has the USD not collapsed yet? Could it be a matter of confidence in the first place?
Good questions Sir. I am sure you have heard of Brent Johnson’s dollar milkshake theory. It is quite plausible. Ultimately the dollar is doomed but it could be the “least dirty shirt” for a while yet. In particular, your point 3 – those dollar denominated debts. Yes, do put a floor under the USD. This is exactly why the dollar spiked in March-April 2020.
Brandon, as much I would like to agree with you I have two issue with this thesis. First, our $30 T debt is, by far, the largest expense item in our budget. Raising rates would blow that up dramatically. Second, a collapsing stock market in an election year is very bad for the establishment. They already looking very weak, this will perhaps destroy them. And one inflation factors, like upply chain issue, are not going to be impacted by raising rate
First, you are still under the incorrect assumption that the establishment cares about the US economy. This is a common mistake in the liberty movement. The GOAL IS A COLLAPSE IN THE US. I don’t know how many different ways to say it so people understand. Please stop living in a fantasy land in which you think the globalists need the US economy; they don’t. They have crashed the system in the US before to get what they want and they will do it again. It’s happening right now in front of your face. Wake up!
Second, why do you think elections matter at all? There may be NO elections if the crash is big enough. Or, they could easily allow conservatives to sweep in 2022, only to let the system crash right after and blame conservatives as the cause. It’s time to start thinking out of the box, my guy. The elites screwed up with the covid plan and the mandate attempts, but it is truly foolish to think they are near the end. Not even close. You’ll know they’re near they end the day we start finding their membership hanging from lamp posts.
And that will be a good day!
Amen. Couldn’t have said it better myself and I’ve been in this knee deep for over 30 years. My financial advisors thought I dove into a pool without a deep end when I pulled every last penny from the Stock Market back in 2020. Sure, I’m missing some short-term gains, but as I tell everyone I know – use your Federal Reserve Notes (in your retirement funds) to buy real property now. Take the penalty if you’re under 59 1/2. Pull it out. Social Security is going to be insolvent in 5 years – do people really think the Markets will bail them out? The cliché never gets old – people are simply playing the violin and rearranging the deck chairs while the U.S.S American Economy slowly sinks beneath the waves.
Brandon – Any thoughts on the news today that the DHS has created a domestic terrorism unit to combat “misinformation” that would lead to domestic terrorism….So freedom of speech is now terrorism. They are trying to do whatever they can to turn the fallout from their horrendous policies into whatever opportunity they can…. Governments are, of course, by definition inherently inefficient, wasteful, & coercive territorial monopolist of ultimate decisionmaking and violence, and they see evry crisis as an opportunity, even if they incite the crisis. I have read a lot of history, and this is quickly turning into one of the most dangerous times to be a citizen in the USA…
The DHS has been tasked with monitoring liberty and alternative news websites for many years now, so it’s nothing that surprising. At first, they were trying to frighten liberty people into silence through paranoia – “Oh no, the DHS might put my name on a list if I visit that website….” But ultimately that didn’t work out for them and we grew far beyond their control. Now, I think DHS will try to coordinate with Big Tech social media just like the White House is doing and work to identify targets for censorship.
China and Russia have completed a significant 30-year contract in the gas sector on Friday, which is not handled in dollars, but in euros.
There has been a massive residential property buying spree accelerated by the engineered covid pandemic. The asking price is merely a suggestion and a cue for would be buyers to step in and say how much more can they pay over asking. In my area (nor cal), from what I know, the younger folks are legitimately qualifying for these big loans. The whole thing seems out of touch with reality just like leading up to 08. I’ve been looking to replace my condo and move into a house but I have a hard time justifying these prices. I’d have to pay $150K over just to not end up in a gang or tweaker neighborhood. Or do I sell now and wait?
I have to wonder if we are heading into something not unlike 08. People signing up for 30 yr mortgages because the interest is low and their salaries are high. The engineered work from home lifestyle means you can relocate to an unpractical distance away from the office. Has anyone ever heard of Zoom prior to 2020? If these big tech firms are running on credit then the whole thing can fold like a house of cards when rates go up. Those who are employed by the over leveraged tech firm will find themselves an employee of the state at a lower wage that is more in line with reality? The whole thing smells like a set up to me. During the Clinton years the bar was lowered so the paperboy can buy a house in Beverly Hills using “stated income.” Seems like home loans were found in Cracker Jack boxes. All that was needed to complete the plan was to sit back and let the game run its course until everyone hits the wall. Blackrock becomes your landlord.
One thing I know is it takes a vary long time to change the course of the Titanic. But in order to change course all the passengers need to be paddling in the same direction. Enter the private central banks or BIS as a means of financially steering people in a direction that is preferential to TPTB. I have said long ago that nothing will be taken by force. The people will go willingly.
No conservatives will go willingly, we already proved that with the covid mandates. An economic collapse is not going to change that, it will only accelerate the inevitable rebellion.
It would seem that some American states are taking your advices, Brandon, and them of other lucid analysts like Mr. Egon Von Greyerz, concerning protection with precious metals.
Interesting: UBS, the largest of Swiss banks (the 2nd, Credit Suisse), after mesestiming gold for numerous years, suggest this last one in order to protect to different major crisis.
Here is a very, very good article by Mr E. Von Greyerz which joins many of your economic and financial analysis:
Huge storm is coming.
“Those who make peaceful revolution impossible will make violent revolution inevitable.”, JFK
I’m reminded of a recent article.
And the quote that seems to be the most likely conclusion “when all else fails they take us to war”
Author: unknown (Gerald Celente) uses it, not sure if he coined it.
Distraction away from the greatest modern crimes against humanity COVID-19, which appears to also be it’s own distraction from what was looking to be another financial crisis prior to the pandemic announcement.
Empathy is not present in the great game of thrones.
I’ve been reading you since back in the Giordano Bruno days, it’s been a long wild ride, that is for sure.
Just wondering about your thoughts on the effect on other global currencies as the $USD is crashed.
Specfically, do you think say the $AUD will be likely to strengthen into $USD weakness, as would be the normal playbook, or do you think global currencies (specifically say in the 5-eyes zone) will fall together as part of the move to a transnational central bank digitial currency of the (rough) sort imagined by globalists.
“In fact, my own grandfather had expanded his trucking company with multiple vehicles and millions of dollars and a large amount of credit in the early 70s, only to have his business destroyed by skyrocketing interest rates. The 1970s stagflation crisis was nothing compared to what we now face.”
Interesting point. Could you elaborate why you believe today’s stagflation is worse?
Tens of trillions of dollars in fiat money creation and helicopter money over the course of the past decade, including $6 trillion in 2020 alone.
Well this is interesting. Blackrock gets federal money at 1/2% and is buying up single family homes above asking. Buying whole towns. Now their FED friends raise interest rates forcing many people under water with their mortgages and Blackrock can sweep in and buy more below market. I guess this is how We Will Own Nothing and Be Happy.
Larry FInk CEO of Blackrock is a senior member of the WORLD ECONOMIC FORUM under Santa Klaus