Subscribe to our Mailing List

Get the news right in your inbox!

Markets Are Expecting The Federal Reserve To Save Them – It’s Not Going To Happen

October 8, 2022

This article was written by Brandon Smith and originally published at Birch Gold Group

I have said it many times in the past but I’ll say it here again: Stock markets are a trailing indicator of economic health, not a leading indicator. Rising stock prices are not a signal of future economic stability and when stocks fall it’s usually after years of declines in other sectors of the financial system. Collapsing stocks are not the “cause” of an economic crisis, they are just a delayed symptom of a crisis that was always there.

Anyone who started investing after the crash of 2008 probably has zero concept of how markets are supposed to behave and what they represent to the rest of the economy. They have never seen stocks move freely without central bank interference and they have only witnessed brief glimpses of true price discovery.

With each new leg down in markets one can now predict every couple of months or so with relative certainty that investor sentiment will turn to assumptions that the Federal Reserve is going to leap in with new stimulus measures. This is not supposed to be normal, but they can’t really help it, they were trained over the past 14 years to expect QE like clockwork whenever markets took a dip of 10% or more. The problem is that conditions have changed dramatically in terms of credit conditions and price environment and it was all those trillions of QE dollars that ultimately created this mess.

Many alternative economists, myself included, saw this threat coming miles away and years ahead of time. In my article ‘The Economic End Game Continues’, published in 2017, I outlined the inevitable outcome of the global QE bonanza:

The changing of the Fed chair is absolutely meaningless as far as policy is concerned. Jerome Powell will continue the same exact initiatives as Yellen; stimulus will be removed, rates will be hiked and the balance sheet will be reduced, leaving the massive market bubble the Fed originally created vulnerable to implosion.

An observant person…might have noticed that central banks around the world seem to be acting in a coordinated fashion to remove stimulus support from markets and raise interest rates, cutting off supply lines of easy money that have long been a crutch for our crippled economy.”

The Fed supports markets through easy money that feeds stock buybacks, and it’s primarily buybacks that kept stocks alive for all these years. It should be noted that as indexes like the S&P 500 plunged 20% or more in in the first six months of 2022, buybacks also decreased by 21.8% in the same time period. That is to say, there seems to be a direct relationship between the level of stock buybacks and the number of companies participating vs the decline of stocks overall.

And why did buybacks decline? Because the Fed is raising interest rates and the easy money is disappearing.

If buybacks are the primary determinant of stock market prices, then the participation of individual investors is mostly meaningless. Stocks cannot sustain on the backs of regular investors because regular investors don’t have enough capital to keep markets afloat. Companies must continue to buy their own shares in order to artificially prop up prices, and they need cheap Fed money to do that. Stocks are therefore an illusion built only on the whims of the Fed.

And the reason for the Fed’s dramatic shift away from stimulus and into tightening? One could argue that it’s merely the natural end result of inflationary manipulation; that central banks like the Fed were ignorant or arrogant and they weren’t thinking ahead about the consequences. Except, this is false. The Fed knew EXACTLY what it was doing the whole time, and here’s the proof…

Way back in 2012 before Jerome Powell became Fed Chairman, he warned of a market crisis if the central bank was to hike rates into economic weakness after so many years of acclimating the system to easy money and QE. During the October 2012 Fed meeting Powell stated:

“…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.”

In other words, Powell and all other Fed officials knew ten years ago what was going to happen. They knew that they were creating a massive financial bubble and that when they raised rates that bubble would collapse causing serious economic damage. Yet, they kept expanding the bubble, and now with Powell as chairman, they are popping the bubble. No one honest can claim that the central bankers were “blind” or ignorant. This is an engineered crash, not an accidental crash.

If the crash is deliberate then it is a means to an end, and there is no reason for the Fed to intervene to save markets at this time. Some people will argue that this puts a target on the Fed as a saboteur of the economy, and they wonder why the central bankers would put themselves at risk? Because they have a rationale, a way out, and it’s called “stagflation.”

Price inflation coupled with negative GDP is the basis for a stagflationary environment. The only other factor that is missing in the US today is rising unemployment, but this problem will arrive soon as numerous companies are slated to start layoffs in the winter. Stagflation is the Fed’s perfect excuse for continuing to raise interest rates despite plunging stocks. If they don’t hike rates then price inflation runs rampant and GDP declines anyway. If they return to QE then an inflationary calamity ensues.

In order to “save us,” they have to hurt us. That’s the excuse they will use.

It’s a Catch-22 event that they created, and I believe they created it with a purpose. But let’s imagine for a moment that the Fed has the best interests of the economy at heart; would a pivot back to QE change anything?

Not in the long run. Rising inflation is going to crush what’s left of the system anyway. Supply chain problems will only get worse as costs rise. To return to stimulus would indeed put a target on the central bankers. It’s better for them to pretend as if they are trying to fix the problem rather than continue with policies that everyone knows are draining pocket books.

Stocks saw a brief rebound this past week for one reason and one reason only – Rumors of a Fed pivot were spread and investors were hoping for a stop to rate hikes or a glorious return to stimulus measures. We will see many short rebounds in stocks like this over the next year, each one initiated by rumors of a reversal in policy. It’s not going to happen.

Will the Fed stop rate hikes? Sure, probably when the Fed funds rate is between 4% to 5%. Will that mean a reversal is on the horizon? No, it won’t. And it won’t mean that the Fed is done with rate hikes. They could start hiking again a few months down the road as price inflation persists.

Will the Fed return to QE? I see no reason why they would. Again, they are fully aware of the damage they have done with the QE bubble and the popping of that bubble. They would not have hiked rates in the first place unless they wanted a crash.

Consider this: What if the goal of the Fed is the destruction of the middle class? What if they are using the false hopes of small time investors in a return to QE? What if they are luring investors into markets with rumors of a pivot, tricking those investors into pumping money back into markets and then triggering losses yet again with more rate hikes and hawkish language? What if this is a wealth destruction steam valve? What if it’s a trap?

I present this idea because we have seen this before in the US, from 1929 through the 1930s during the Great Depression. The Fed used very similar tactics to systematically destroy middle class wealth and consolidate power for the international banking elites. I leave you with this admission by former Fed Chairman Ben Bernanke on the Fed’s involvement in causing the Great depression through rate hikes into weakness…

In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn.

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” – Ben Bernanke, 2002

Is the Fed really sorry? Or are they just repeating the same strategy they used 90 years ago while acting as if they are unaware of the eventual outcome?

 

 

After 14 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.

Avatar photo
Brandon Smith

All posts
  • Tim October 8, 2022 at 6:09 am

    So why aren’t gold and silver acting as a hedge against inflation? What reason do we have to believe that there will ever be true price discovery as long as the price of gold and silver is set by the Comex?

    • Avatar photo
      Brandon Smith October 8, 2022 at 7:26 am

      Try to go out and buy physical for the same price as comex. It’s not going to happen, you will spend at least 20% over spot. Physical will completely decouple from the comex as stocks crash and people flood into real metals. It’s only a matter of time. Anyone tracking paper prices is not seeing the reality of the situation.

    • Jim October 9, 2022 at 9:33 am

      Exactly! There is no honest gold/silver market, they’d be through the roof. Two big mistakes are coming. One is the people who are within 3 years of retirement and are still at full exposure to stocks. The other is people without enough liquidity to take advantage of the incredible buying opportunity coming.

  • Nigel Gould October 8, 2022 at 7:44 am

    Some say a “credit event” might/will convince the Fed to change course. But even that is not a reasonable assumption?

    • Avatar photo
      Brandon Smith October 8, 2022 at 7:47 am

      A credit event is what they want, why would they try to stop it?

      • Nigel Gould October 8, 2022 at 8:04 am

        And what about the credit event with the pension funds in the UK recently, which forced the BoE to postpone (indefinitely) its version of QT and even extend QE? Are other central banks not in the same boat as the Fed? Thanks.

        • Avatar photo
          Brandon Smith October 8, 2022 at 8:13 am

          Yeah, a lot of people greatly misunderstand that event, which was only a PAUSE on rate hikes until November. It was NOT postponed indefinitely, and there is no QE. That is disinformation. From yesterday – Interest rate rises only way to tame UK inflation, warns Bank of England deputy governor:

          https://uk.finance.yahoo.com/news/interest-rate-uk-inflation-bank-of-england-110747150.html

          One pause in rate hikes by the BOE is MEANINGLESS to the bigger picture. The Fed will not reverse course and there will be no new QE. Sorry, not going to happen. The QE hope among investors is a delusion.

          • Nigel Gould October 8, 2022 at 10:03 am

            Hmmm, we will see what happens towards October 31, when the BoE is supposed to start the postponed sales of their gilt holdings. Will the circumstances differ from September 28 by then or will it proceed anyway?

          • Avatar photo
            Brandon Smith October 8, 2022 at 12:55 pm

            Well, they just said that they are going to continue rate hikes regardless. Again, the gilt sale issue is meaningless to the bigger picture.

          • Abhid Menon October 8, 2022 at 3:30 pm

            From the article: “The Bank said it would buy up to £65bn ($73bn) in gilts over a 13-day period in response to the mini-budget. ”

            They had no other tools to stop the pension funds going belly up, so clearly the BoE didn’t want the pensions funds blowing up just yet and had to do the 65 billion of QE.

            If something breaks in the US do you really not see the Fed resorting to QE as well? Would it allow the government to default on bond repayments, social security payments or military expense? Or would it just resort to printing? I suspect the latter.

          • Avatar photo
            Brandon Smith October 8, 2022 at 3:43 pm

            You would be wrong, and yes, the central bankers would absolutely allow the US to default. In fact, that is the plan as a means to bring in a new global currency system. Gilt purchases from the BOE are not legitimate QE, that’s the bank merely shifting some assets into other assets. QE is massive and direct intervention in the trillions of dollars, which is what would be needed to reverse markets (and not much else). The purchase of Gilts has NOTHING to do with QE or rate hikes, and is a drop in the bucket by comparison. Sorry, this is the reality. And, as the BOE has already indicated, they will continue with rate hikes. Also, no, the Fed will not reverse course. Why would they? They don’t care about the markets crashing, they only care about WHEN the markets crash, which is likely next year. A year ago everyone was saying the Fed would not hike rates and that they would pivot back to QE. They were wrong back then as they are wrong now. MARKETS WILL NOT BE SAVED. PERIOD.

  • Roundball Shaman October 8, 2022 at 11:33 am

    “Stock markets are a trailing indicator of economic health, not a leading indicator.”
    .
    The entire World lives with the consequence of a completely phony and rigged ‘economy’. Central banksters control the conjuring of fake money at their own whim and for their own secretive ends. And They ‘buy’ stocks and real assets with this phony money to further distort this cartoon economy.
    .
    The stock market is reflective of little except for how some ‘investors’ anticipate how and when the ‘economy’ is going to be rigged and in which direction.
    .
    In other words… the World Economy is a Clown Show. Or – said more accurately — a giant puppet show in which the puppeteer Banksters pull the strings of all things related to money and investments and the economy and by attachment pulls the strings of every single human being on the planet.
    .
    This sick game has been going on since at least 1913 and probably earlier. And this rigged smelly system is so ingrained into the World’s DNA that it’s a virus the planet can never rid itself of.
    .
    Following how and when the stock market goes up or down just doesn’t matter in a fully rigged economy. This is like a baseball pitcher that juices up the ball to make it do all kinds of distorted things and then the umpire calls the pitch a ball or a strike. Who cares what the ump calls it? The damn pitcher is doctoring the ball and from that point it doesn’t matter what happens because the whole thing is a fraud.
    .
    It would really be nice if a true and honest free market were ever tried. That would be exciting.
    .
    But the Favored Class that rigs everything to enrich themselves would never permit such a thing. And so… this will be a dream forever unfulfilled. And that’s a shame because countless people in all the generations have been badly hurt and their lives cheapened because we have to live with a Rigged Economy that only works for the self-Chosen few.
    .
    They can’t take all their money with them when their days are over and They are called up to the clouds. But it is always hilarious to watch them try when that fateful day is upon them…
    .
    Good luck trying to rig things up there, pals.

    • R0ku October 8, 2022 at 10:13 pm

      Well written, and clear. All market’s technicals flashing SELL. FAANGs leading the drop, and hence s&p will follow suit. Question remains, what happens with Bitcoin. After all, similar to markets, is controlled. No QE means massive dump coming up. Change is afoot, and we will see world turn for better as “failure is only a bend in the road, and not the end of the road.”

  • Aaron October 8, 2022 at 1:31 pm

    Brando,

    Do you believe the DXY being so high is negatively affecting PM prices?

    • Avatar photo
      Brandon Smith October 8, 2022 at 1:54 pm

      Maybe paper market prices. It doesn’t seem to have as much bearing on physical these days. Oil hasn’t been much affected either.

  • Todd Samuelson October 8, 2022 at 9:29 pm

    Brandon, do you think US Gov would go that far to default on Treasuries, such as savings bonds? Wouldn’t that forever erase any “full faith and credit” and turn the dollar into a peso? Wouldn’t at that point Congress intervene, I mean the Fed isn’t above the Congress.

    • Avatar photo
      Brandon Smith October 8, 2022 at 10:46 pm

      The Fed does whatever the hell it wants. There’s nothing that Congress can do except POSSIBLY shut them down, but what do you think would happen to the dollar and treasuries then? Now you see the conundrum.

      • Nigel Gould October 9, 2022 at 5:19 am

        Or the president and the Senate will replace Powell with an “appropriate” chairman. A US default and the ensuing societal collapse (including an unarmed US army) would guarantee Congress and the White House being stormed and burned down.

        • Avatar photo
          Brandon Smith October 9, 2022 at 1:19 pm

          The central bankers pick the candidates for chairman, but yes, they will seek to divert blame away from themselves and to anyone else. Biden and other politicians are complicit, but they are just puppets and are there to distract from the banks.

  • Kushi October 8, 2022 at 10:33 pm

    Nature has already signed and sealed cleansing for all lunatics, with the coming plasma changeover. A new dawn awaits us, and new beginnings in harmony with everything. Every day is a blessing. Have heart, my friends!

  • Rodster October 9, 2022 at 4:08 am

    Without all the stock buybacks, what is a company such as Apple really worth? Will their value and other tech companies such as Amazon, Google etc drop like a rock when this all implodes? I don’t play the stock market, i’m just curious.

    • helot October 9, 2022 at 8:15 pm

      Good question, Rodster.

      What – will – their value be?

      Who knows?

      I’m reminded of the handheld ‘video games’ from the 1970’s. They were only good so long as there were fresh batteries in it. And, most importantly, they were valuable, so long as there was someone who wanted to play with it – AND- there weren’t more pressing issues.

      …I read once, about I-Phones, there’s a doo-hicky app thingie which turned it into a walkie-talkie. No connectivity/satellites required. Seemed like maybe a half-way good substitute for a Ham radio. Idk.

  • kmose October 9, 2022 at 4:56 am

    I heard a joke once that went, “Jamie Dimon and Lloyd Blankfein were in a private plane when it crashed on a small deserted island in the middle of the ocean. When resucers found them, they triumphantly announced they each had made $20 billion trading a hat back and forth.”
    I suppose if the FedRes is your wallet, this is theoretically possible. This also means markets actually don’t need “investors.” And transparency is long gone, in all institutions. As long as the insiders get richer and richer…
    In the days of Augustus, the average senator was worth 10 times the average citizen. By the late third century, it was 10,000 times, and their homes had come to be like small towns. Raging inflation by then, as well.

  • John October 9, 2022 at 8:49 am

    Very Interesting Brandon, Thank You!
    I would have thought that the Fed would pivot to save the ultra wealthy who own most of the financial assets. But, your saying that’s wrong?

    • Avatar photo
      Brandon Smith October 9, 2022 at 1:21 pm

      The ultra wealthy don’t need the Fed’s protection, they are globalists. They plan to be in charge of the NEW system once the dollar and the US implode. We can’t let them be the people that rebuild.

      • John October 9, 2022 at 7:00 pm

        Thanks!
        I just found your site today, and have been reading some of your articles. I’m impressed at how you are able to explain things simply & directly!

  • Ragaz October 9, 2022 at 9:45 am

    The big coin merchants are charging between $41 – $43 for 1 oz. American Silver Eagles. That’s a 100%+ premium markup from spot pricing. Looks like the physical market is telling the paper market riggers to go pound sand.

  • Plebney October 9, 2022 at 6:21 pm

    The markets can’t expect anything, markets are inanimate objects or concepts.

  • YSSN October 10, 2022 at 6:36 am

    Brandon do you see markets retail investors trade (futures, currencies) as something the common person will be able to continue participating in in the future (before/after say a global currency, when it comes to pass)?

    • Avatar photo
      Brandon Smith October 10, 2022 at 3:16 pm

      No, probably not. The average person will be more concerned with survival.

  • John October 10, 2022 at 1:56 pm

    If the Fed & the big banks are both globalists, how will the big banks profit when the Fed pulls the plug on the markets?

    • Avatar photo
      Brandon Smith October 10, 2022 at 2:35 pm

      This was already explained. Read the previous comments. “Profit” is not the primary motivation for the globalists.

      • helot October 10, 2022 at 7:23 pm

        RE: ““Profit” is not the primary motivation for the globalists.”

        It’s amazing to me how many people think this: that The Fed, and all the other globalist, are only focused upon ‘profit’ … as if there’s nothing else they want.

        • Avatar photo
          Brandon Smith October 10, 2022 at 11:29 pm

          I’ve been fighting this misconception for 16 years now and for some reason there’s still people that can’t wrap their heads around the idea that the globalists want centralized power. They cannot think beyond the concept of money, and they certainly don’t understand how temporary currencies actually are.

  • JB October 11, 2022 at 3:15 am

    Brandon,

    How do you envision China invading Taiwan? Do you foresee an amphibious invasion or a slow blockade? If so, when you do anticipate this happening?

    • Avatar photo
      Brandon Smith October 11, 2022 at 3:30 am

      Slow blockade (for months) leading to eventual invasion if Taiwan doesn’t fold. If it doesn’t happen soon, then China would probably have to wait until next Autumn when the typhoon season ends. Though, a blockade might be possible at longer range without using the Taiwan Strait. The weather would certainly be a factor.

  • David Homer October 12, 2022 at 7:51 am

    Good article Brandon. Most economists are only repeating the lies of the CB and the government. When I read that only the wealthy are invested in the stock market, the market going up causing people to spend due to the wealth effect cannot be true. Government spending is the main driver of inflation on main street. The Fed prints money to cover this spending and are ultimately responsible. If the Fed raises interest rates and Government spending does not slow down inflation of consumer goods will not change much at all. There will even be some pressure on it to increase due to the fact that most corporations are heavily indebted and therefore their costs increase with the rate increases and this cost is passed on to consumers. The other factor which neither the government nor the Fed mentions is that the cost of energy is built into the cost for everything. Government policies are forcing energy costs to increase dramatically and driving inflation higher. Raising rates will not decrease inflation a significant amount at all. It will only cause the market to crash. Corporations that have too much debt will fail and people will be unemployed. We will have a depression as well as inflation. Only the market should set prices for money not the Fed. Only the market should determine what energy we use and set prices for it. Anything else is an engineered catastrophe.

    • AL October 12, 2022 at 9:08 am

      Around the time of the covid house buying panic I theorized that those who legitimately qualified for those over priced houses (in Nor Cal it was stupidly over priced) were getting paid far more than they should be. Perhaps throwing truckloads of money at people for a job – that in any normal market not propped up by cheap loans and work from home as a driving technological factor – may wind down to reality. The big question is will we begin to see another foreclosure crisis similar to 08? It sure seems that the covid house buying panic is another catalyst to consolidate wealth and control.

    Join The Wild Bunch!

    If you would like to support the work that Alt-Market does while also receiving content on advanced tactics for defeating the globalist agenda, subscribe to our exclusive newsletter The Wild Bunch Dispatch.

    U.S. National Debt

    The current U.S. national debt:
    $31,370,818,044,115

    Source

    ×