December 11, 2018 - San Francisco, CA - PipeLineNews.org – In a piece published a few day ago, we opined that the Fed was taking an active role in tanking the economy since all of the Marxists’ political tools have proven ineffective
Nothing that we have seen since that posting has changed our mind, in fact the Chair of the Fed has made it quite clear that not only are rates due to increase, but that the central bank’s doubling of rates in a very short period of time doesn’t even get us to the point where the Fed consideres “neutral,” a shocking idea.
Currently inflation is at historic lows, unemployment is similarly down, the dollar is strong and wages are marginally starting to increase, meaning that increasing the cost of money can only negatively impact growth, something that the Fed seems afraid of.
“Seems” is the operative word here since the Fed has killed off so many bull markets that the point seems inarguable as does the assertion that it fails to see genuine threats to the economy [the 2008 toxic debt malarkey] and is blind to the effect of tight money on an improving economy.
Something we have not seen discussed is the frightening prospect of rates rising high enough to cause the US to contemplate defaulting on debt payments simply because even in the mirror world of central banking, they eventually run out of not only other people’s money but their own.
It should be noted that the debt in question would be the trillions of dollars worth of bonds that were required to fund Obama’s tragically failed economic experiment.
Background, as heretofore mentioned; the below is compressed but provides the type of metrics required to understand what America’s thoroughly globalized Federal Reserve has in store for the first genuine breakout surging economy in generations:
With the subprime mortgage meltdown already percolating, ominously, the Federal Reserve under both Chairman Greenspan and then Bernanke commenced a spectacular series of interest rate hikes - across seventeen consecutive meetings - that saw the Fed interest rate explode from a mere 2% in May 2004 to the unconscionable level of 6.5% by August 7, 2007 [source, Wiki, History of Federal Open Market Committee Actions ].
When it became clear that a major crisis was underway [March 2008] and while the Fed intervened engineering a pressured sweetheart purchase of the brokerage firm Bears Stern by JP Morgan Chase, rates were still at 3.25%, creating tight credit markets at exactly the point where liquidity was badly needed.
When the Fed acknowledged the seriousness of the threat, it then reversed gears and backed the Fed Rate down. But it did so just enough to hamstring the economy sufficiently to aid the Democrat candidate [it’s the economy stupid] not too much, just enough to bring about a crash landing.
Unfortunately facing off against the GOP’s schlub of a candidate, John McCain was the charismatic, Senator from Illinois, Barack Obama…and we all know the result of that mismatch.
But with victory then in hand and the Democrat Party controlling both Houses of Congress in addition to the presidency, the oddest thing occurred, the Fed walked things back down quickly so that Mr. Obama was greeted in December 2008 an effective interest rate of 0% where it essentially remained for the next 8 years.
But then, with Trump in the White House and his not-so-happy GOP in tow, right on beat, the Fed started jacking rates up again in earnest, rising to the current level of 2.75% a more than doubling of rates from those of December 2016 [1.25%].
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