Fed-Watching Is Overhyped And Overdone

FED-WATCHING IS OVERHYPED

If you are one of those who is looking for clues from the Federal Reserve as to the direction of the markets, forget it. You are too late.

Too many people think that the latest Fed minutes will give them some indication of what to expect from the markets. Those same people think that the Fed actually has a strategy and that they are “managing the economy” with the intention of pursuing what is best financially and economically for the country.

Wake up! The Federal Reserve does not exist and operate with the intention of acting in our best interests financially, economically, or in any other way.

The Federal Reserve is an institution that exists for the benefit of its member banks, in order to provide a controlled system and financial environment under which the very large money-center banks can create and loan money in infinite amounts, indefinitely. (see Federal Reserve – Purpose And Motivation)

Whatever the trigger behind the abrupt change in the Fed’s attempt to return interest rates to more normal levels, the basic motivation was rooted in fear. And not fear by Jerome Powell that the President would try to demote or replace him.

It was also not fear of public outcry. It was fear that the system was on the verge of rejection of their efforts, and a repeat of 2007-08 might very well be at hand. Another credit collapse would wipe out the values of dollar-denominated assets, just as happened twelve years ago, and would lead to an economic depression – and deflation.

The reason the Fed began their effort to raise interest rates several years ago is because they were at a juncture where continued easing could again trigger huge declines in the dollar. On the other hand, raising rates raised the possibility that the system would not tolerate the restrictions well enough to get better, and another collapse would ensue.

All of the Federal Reserve’s activity for the past several years is based on fear. One one hand, they are afraid of killing the patient (the US dollar) with an overdose of drugs (inflation, expansion of money and credit).

On the other hand, they are afraid that their efforts to restore interest rates to a more historically normal level will be rejected and the system will collapse anyway.

So they continue to react to the same news and headline statistics that we all see and hear. And whatever actions they take have less and less impact (Fed Inflation Is Losing Its Intended Effect).

“What about the Fed’s attempt to control and manage inflation”, you might ask. Good question. But before answering, here is another question for you.

Did you know that the Federal Reserve creates inflation? That’s right. Inflation is caused by government…

Inflation is the debasement of money by government. In this case, the term includes central banks.

Governments and central banks create inflation by continually expanding the supply of money and credit. This debasement of the money supply leads to a loss in purchasing power in paper currencies, i.e., the US dollar.

The loss in purchasing power leads to generally rising prices over time. The rising prices are the effects of inflation.

Ironically, the Fed is trying to manage the effects of inflation that is of  own its making. (see The Fed’s 2% Inflation Target Is Pointless)

Repo Market, Liquidity Problems

Liquidity issues in the repo money market are the latest symptoms of system frailty. That frailty originates in our banking system which is based on and operates under the practice of fractional reserves. (see Origin And Danger Of Fractional-Reserve Banking)

As bad as the liquidity issues are, as well as their implications for financial disaster, something else transcends all of the apparent problems.

The effects of inflation (especially including the inflation created by the practice of franctional-reserve banking) are UNPREDICTABLE. They are also cumulative and volatile.

Let’s summarize:

1. The Federal Reserve is attempting to manage the effects of inflation that it created intentionally.
2. The effects the Fed is trying to manage are volatile and unpredictable.
3. Fed actions are having less and less impact.
4. The Fed is acting out of fear.
5. The Fed’s purpose and intentions are not aligned with yours (unless you are a money center bank).

Now that you know these things, place your bets!

 

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!