For the past several months, the chorus of voices crying out over the prospect of a Federal Reserve interest rate hike have all been saying essentially the same thing – either they can’t do it, or they simply won’t do it. This is the same attitude the chorus projected during the initial prospects of a QE taper. Given the trends and evidence at hand I personally will have to take the same position on the rate hike as I did with the taper – they can do it, and they probably will do it before the year is over.
I suppose we may know more after the conclusion of the Fed meeting set for the 16th and 17th of this month. August retail sales data and industrial production numbers have come in, and they are not impressive even with the artificial goosing such stats generally receive. However, I do not expect that they will have any bearing whatsoever on the interest rate theater. The Fed’s decision has already been made, probably months in advance.
The overall market consensus seems to be one of outright bewilderment, so much so that markets have reentered the madness of "bad news is good news" as stocks explode on any negative data that might suggest the Fed will delay. The so-called experts cannot grasp why the Fed would even entertain the notion of a rate hike at this stage in the game. Hilariously, it is Paul Krugman who is saying what I have been saying for the past year when he states:
"I really find it quite mysterious that the Fed is eager to raise rates given that, they’re going to be wrong one way or the other, we just don’t know which way. But the costs of being wrong in one direction are so much higher than the costs of being the other."
Yes, why does the Fed seem so eager? Every quarter since the bailouts began no one has been asking for interest rates to increase. No one. Only recently has the Bank for International Settlements warned of market turmoil due to the long term saturation of markets caused by low interest policies, yet it was the BIS that had been championing low rates and easy money for years. The IMF has warned that a U.S. rate increase at this time would cause a market crisis, yet the IMF has also been admonishing low rate policies, policies that they had also been originally supporting for years.
Confused yet? The investment world certainly seems to be. In fact, the overall market attitude towards a rate hike appears to be a heightened sense of terror, and I believe this has been amply reflected in global stock behavior over the past three months in particular. With thousands of points positive and negative spanned in only a couple of trading sessions, stock market indexes around the world are beginning to behave like seizure victims, jerking and convulsing erratically.
This has, of course, all been blamed on China’s supposed economic “contagion.” But you can read why that is utter nonsense in my article “Economic crisis goes mainstream – What happens next?”
The bottom line is, the Federal Reserve has been the primary driver of the massive financial bubbles now in place in most of the world’s markets, and much of this was accomplished through ZIRP (zero interest rate policy). Hopefully many of the readers here can recall the tens of trillions of dollars of overnight lending by the Fed to international banks and corporations that was exposed during the initial TARP (Troubled Asset Relief Program – aka bailout) audit. You know, the trillions in lending that mainstream naysayers claimed was "not" contributing to the overall debt picture of the U.S. Well, reality has shown that ZIRP and overnight lending has indeed directly and indirectly created debt bubbles in numerous areas.
The most vital of areas at this time is perhaps the debts accrued by major banks and companies that have relied on overnight loans to facilitate massive stock buybacks. It has been these buybacks that have artificially supported stocks for years, and whenever ZIRP was not enough, the Fed stepped in with yet another QE program to give particular indicators a boost. The main purpose of this strategy was to ensure that markets would NOT reflect the real underlying instability of our economic system. The Fed has been pumping up banks and markets not only in the U.S., but across the globe. Why? We'll get to that, but keep in mind that it takes time and careful strategy to wear down a population and condition them to accept far lower living standards as the "new normal" (and it takes a sudden crisis event to convince a population to be happy with such low standards given the frightening alternative).
Even with near zero interest, companies have still had to utilize a high percentage of profits in order to continue the stock buyback scam. We have finally arrived at a crossroads in which these companies will be forced to either stop buybacks altogether, or await another even more comprehensive stimulus infusion from the Fed. A rate increase of .25 percent might seem insignificant, until you realize that banks and companies have been cycling tens of trillions of dollars in ZIRP through their coffers and equities. At that level, a minor increase in borrowing costs swiftly accumulates into untenable debts. A rate increase will kill all overnight borrowing, it will kill stock buybacks, and thus, it will kill the fantasy that is today's stock market.
This is why so many analysts simply cannot fathom why the Fed would raise rates, and why many people fully expect the introduction of QE4. But we need to ask some fundamental questions here…
Again, as Krugman ponders (or doesn’t ponder, since I believe he is an elitist insider with full knowledge of what is about to happen), why does the Fed seem so eager to raise rates if the obvious result will be a drawn out market crash? Is it possible, just maybe, that the Fed does not want to prop up markets anymore? Is it possible that the Fed’s job is to destroy the American economy and the dollar, rather than protecting either? Is it possible that the Fed is just a useful tool, an institutionally glorified suicide bomber meant to explode itself in the most populated area it can find to cause maximum damage for effect? Wouldn’t this dynamic go a long way in explaining why the Fed has taken every single action it has taken since its underhanded inception in 1913?
Will the Fed raise rates this week? I still think the Fed may "surprise" with a delay until December in order to give one more short term boost to the markets, but as I read the mainstream economic press I find the newest trend indicates I could be wrong. The trend I am speaking of has only launched in the past couple of days in the mainstream media, as outlets such as the Financial Times and CNN are now publishing arguments which claim a Fed rate hike is a “good thing”. While it may be a "good thing" in the long run as it is vital for everything that is over-inflated in our economy to fall away and leave that which is real behind, a return to true free markets without ZIRP manipulation is NOT what the mainstream media is promoting.
The mainstream pro-rate hike arguments are in most cases predicated on completely fabricated notions of economic recovery. CNN states:
"At a time when the U.S. economy is chugging along at over 2% growth and the unemployment rate reflects almost full employment, there’s not much of a case for the Fed’s key interest rate to remain at historic lows…"
As I outlined in my series written at the beginning of this year titled “One last look at the real economy before it implodes,” any growth in gross domestic product (GDP) is a farce driven primarily by government debt spending and inflation in particular necessities rather than recovery in the core economy and on main street. And, unemployment numbers are the biggest statistical con-game of all, with more than 93 million Americans not counted on the Labor Department’s rolls as unemployed because they no longer qualify for benefits.
For a couple of months, some of the mainstream has pulled its head out of its posterior and actually begun asking the questions alternative analysts have been asking for years about the potential risks of returning market volatility and “recession” (which is really an ongoing program of hyperstagflationary collapse) in the wake of a world without steady and open fiat stimulus. Yet, suddenly this week certain MSM establishment mouthpieces are claiming “mission accomplished” in the battle for fiscal recovery and cheerleading for a rate hike?
What this tells me is that the narrative is being shifted and a rate hike is indeed on the way, perhaps even this week.
It is important to note that this stampede over the edge of the cliff is not only being triggered by the Federal Reserve. Most central banks and China's PBOC in particular are definitely part of the bigger problem, but only because China is working alongside international bankers to further their goal of total economic interdependence and centralization. China’s avid pursuit of SDR (special drawing rights) inclusion and its close relationship to the IMF and the BIS must be taken into account if one is to understand why the current fiscal crisis is developing the way it is.
China has recently announced it will be opening its onshore currency markets to foreign central banks, which essentially guarantees the inclusion of the yuan into the IMF’s SDR global currency basket by the middle of next year. The IMF’s decision to delay China’s inclusion until 2016 was clearly a calculated effort to make sure that they did not receive any blame for the market meltdown they know is coming; a meltdown that will accelerate to even more dangerous proportions as central banks begin to move away from the dollar as the world reserve and petro-currency.
In preparation for the global shift away from the dollar, China has begun dumping dollar denominated assets at historic levels while Chinese companies have begun reducing the amount of dollars they borrow for international transactions. Is this selloff designed to liquidate assets in order to support China’s ailing markets? No, not really.
China has been planning a decoupling from the U.S. dollar since at least 2005 when it introduced yuan denominated “Panda Bonds”, which at the time the media laughed at as some kind of novelty. In only ten years, China has slowly but surely spread yuan denominated instruments around the world in order to make China an alternative economic engine to the U.S. China, working with the BIS and IMF, have set the dollar up for an extreme devaluation and the U.S. Treasury has been set up for inevitable bankruptcy; and guess who will ride to our rescue when all seems lost? That's right - the IMF and the BIS.
Will the Fed’s rate hike make U.S. bonds more desirable? Probably not. After a short term initial boost U.S. debt instruments will return to the path of de-dollarization. In the end, I believe the Fed rate hike will encourage more selling by the largest bond holders who will seek to make as much profit as possible until the bottom begins to fall out of the dollar. As China continues to sell off their treasury and dollar holdings, there will come a time when other global investors will feel forced to sell as well to avoid being the last idiot holding the bag when extreme devaluation takes place.
The Fed rate hike is a kind of openly engineered trigger event; one which will likely occur before the end of the year. The major globalist players within the BIS and IMF are separating themselves from this trigger as much as possible today, while warning of a coming crisis they helped to create.
The Fed seems to be a sacrificial appendage at this point, a martyr for the cause of globalization and centralization. Bringing down the U.S. and the dollar, or at least greatly diminishing the U.S. to third world status, has the potential to greatly benefit the Fabian socialists at the top of the pyramid. Such a crisis makes the idea of centralization and global economic administration a more enticing concept.
With a complex and disaster-prone system of interdependence causing social strife and chaos, why not just simplify everything with a global currency and perhaps even global governance? The elites will squeeze the collapse for all it’s worth if they can, and a Fed rate hike may be exactly what they need to begin the final descent.
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written by justanobserver , September 16, 2015
Unless the Fed raises rates to where savers (you know, that free market concept about capital formation for business development, etc.) can get a fair return (say 5%) on their savings, the effect of any increase by the FOMC will be just another commanded and controlled illusion for the masses.
Just as the 900 point drop on Wall Street after the first vote on TARP failed to pass was.
What those who pull the strings (and offer America as next possible douchebag in the White House) engineer is what we will get.
All we can do is choose a response.
written by coyote , September 16, 2015
NWO global socialism seems to be failing with the economic and immigrant crises in euro land. nationalism seems to be on the rise; it would seem difficult for globalists to implement further plans for world wide socialism in the face of impending collapse on the EU notion - ? A plan involving feeding the "refugee" hordes and their own people may have been too much overstretch on the part of the elites.
written by justanobserver , September 16, 2015
Coyote,
Certain German business interests want the cheap labor pool the towel heads offer for jobs the Germans would require a wage that allows them to maintain the lifestyle that a modern society with a middle class affords.
written by andysloan , September 16, 2015
In appropriate timing to their plan, we can deduce the "Elite" will raise interest rates at some stage, so as to detonate the minefield of derivatives they have deliberately laid across the global economy;
"Well respected financial journalist Edward Harle (aka Christopher Story) testified before the UK Parliament shortly before his death that ALL derivatives were fraudulent and originated within the bowels of US Intelligence agencies decades ago as a means of destabilizing the global financial system."
http://www.amazon.co.uk/New-Underworld-Order-Criminalism-Intelligence/dp/1899798056/ref=sr_1_sc_3?ie=UTF8&qid=1442422764&sr=8-3-spell&keywords=christopherstory
God bless all!
written by Pologrounds , September 16, 2015
Very, very good analysis. I've enjoyed reading your articles for many months now. I see what is happening in the United States very clearly, and our time as the Western standard bearer is just about finished. I have said it myself that I thought the Chinese would begin to unload their U.S. Treasury Debt, based on independent analysis and from reading Philosophy of Metrics, only I didn't know how it would occur. Then, seeing the Belgium/Euroclear/China situation unfold, and China openly selling its U.S. debt I see picture much better. I thought that China and Japan would call in the debt, and the U.S wouldn't have the funds (or gold) to settle things. In addition, the debt cieling is to be reached in either late October, November or December. I figured that would play a pivotal role in solidifying the dollar reserve currency status loss in which alternative economic analysis has been stating for years. Thinking out loud, the current cieling of $18+ trillion was raised through 'Extraordinary Measures', which to me is essentially the looting of federal pension funds to create space. That is the time, when the debt cieling is to be reached,where I thought China and Japan would call in the debt, and then the IMF and BIS would swoop in and provide the lifeline, making us the newest Greece.
written by justanobserver , September 16, 2015
Pologrounds,
The debt ceiling has been essentially frozen (at between $18.151 and $18.152 trillion) since early March. The debt is far higher- the Congressional Budget Office estimate of the fiscal year ending debt of only a $550 biilion increase is exceedingly light in the loafers (call it $600 billion higher just like the deficit actually was for the fiscal year ended Sept. 30, 2014).
Once Clowngress raises the debt ceiling, the Treasury Department will raise the amount borrowed to where it actually is.
Yes, your government is lying to you.
Search debt to the penny. The deficit being frozen for the last six months does not mean deficit spending actually stopped.
written by BillyR , September 16, 2015
"The IMF’s decision to delay China’s inclusion until 2016 was clearly a calculated effort to make sure that they did not receive any blame for the market meltdown they know is coming;"
I read a lot of commentary and this is the first time I've read this theory. I think you are spot on Brandon!
written by andysloan , September 16, 2015
Relevant excerpt;
http://i.imgur.com/SAk4vIh.jpg
Full Page
http://redefininggod.com/wp-content/uploads/2015/01/economist_magazine_jan2015.jpg
(For our American friends, the ball is a rugby ball and the Rugby World Cup begins this Friday, 18th September in England.)
written by Ivan the Terrible , September 17, 2015
With everything you wrote, are you just saying the Fed is ready to flip the switch and bring everything crashing down by raising rates?
written by Brandon Smith , September 17, 2015
@Ivan
No need for confusion, it's actually pretty easy to understand. The article is describing a process of engineered economic implosion. The rate hike is only part of that process, though I believe it will be an important part. We'll have to wait and see, either starting tomorrow, or by December depending on how quickly they hope to accelerate.
written by Jordan , September 17, 2015
it matters not, the system will implode regardless. Once the U.S. runs out of nations to secure it's debt the greatest bubble in the history of mankind will burst and hard assets will do the revaluating.
written by Guest , September 17, 2015
Brandon, Financial systems aren't my strong suit. But reading your articles has helped me a great deal. Still that doesn't mean I could instruct a single person in the complexities.
I understand that collapse is coming and quickly. But with that in mind, I honestly don't know if it is wiser to take what cash I have now and pay off a debt, or buy a hard asset? What happens to small credit loans in the event of such a devastating crash?
Being that I am old, and disabled, I don't have prospects for getting out and performing manual labor, so if you or others here would offer suggestions for the best direction for me to take, given the current economic circumstances, it would be greatly appreciated.
Thanks for your continued great articles.
written by Tiger44 , September 18, 2015
When the system crashes, what do you think will get you further when you want to eat: no debt or a nice stash of silver and gold?
written by Brandon Smith , September 18, 2015
@Tiger
It depends on the nature of the crash. If the crash is a slow developing one, as it is right now, we may have to live through several months of a devaluing dollar. In that time period, gold and silver would skyrocket. This would be a perfect window of opportunity to purchase a much larger number of supplies that you would not have been able to with dollars at today's value or tomorrow's value. During the crash in Argentina in 2001-2002, gold and silver were highly sought after commodities. If someone has a solid food supply, they may want to put some of their savings into metals in order to provide purchasing power during the fall of the dollar.
written by Guest , September 18, 2015
I appreciate the input. I have a mental picture of being forced out of my home, which is paid for, in order to repay a $1000. That's why the question. Of course I know what is an appropriate action if the crash happens slowly, which in a sense is what is happening. I've been paying down my debt, but with the surge of possible sudden collapse looming, that's what had me perplexed.505
written by TonyA , September 19, 2015
Well. They didn't raise. Maybe you meant, why they will EVENTUALLY raise. I think you give those idiots at the Fed way to much evil-long-term-strategy credit. At this point, they appear only Obama's economic political tools, with any raise affecting the election and O's legacy.
No. They won't raise. A currency crises will raise rates for them.
written by Brandon Smith , September 19, 2015
@Tony
You obviously did not read the article. I stated that they would likely raise in DECEMBER and that they would delay in September. So far my predictions are correct. They are following the exact same template as the Taper. Yes, they will raise rates, and no, I'm not giving them too much credit. The central banks are not stupid; they never present a policy shift and then not follow through. Everyone said that the Fed would "never taper" and yet they did. I'm willing to bet those same people are wrong about the rate increase.
written by Stan the man , September 19, 2015
There is no way the Fed raises in December. If they couldn't do it now when all their (fake) data shows a recovering economy, there's no way they'll do it in December when things will be worse. October isn’t a Fed press conference and Dec faces illiquid market conditions. Meanwhile the BOJ and ECB both may pursue additional easing before the year is out and another CNY devaluation is a real possibility by 12/31/15 too.
If the Fed doesn't hike in December, how does this change your thesis? To me it suggests there will not be an engineered implosion, the powers that be will just let the world run off a cliff when all control is finally lost.
written by Brandon Smith , September 20, 2015
@Stan
You are looking at the situation from the wrong perspective. Nothing "stopped" the fed from raising in September. The data (even "official" data) on fundamentals has been severely negative since the beginning of the year, yet this did not stop the Fed from suggesting a rate increase that NO ONE asked for. They can interpret the data however they want whenever they want. They simply decided, as they did with the taper, that a delay was to their advantage in manipulating the public psyche. Look at how many people are ignoring the possibility merely because of one delay. They can also announce in October if they so choose. This is the exact same model they used for the taper. And just to be clear, Fed officials are indeed currently calling for a hike in December:
http://www.bloomberg.com/news/articles/2015-09-19/fed-officials-make-case-for-2015-liftoff-after-september-hold
My "thesis" holds that they will use a rate hike to aid in triggering the next leg down in markets. I suppose we shall see by December. Simply "letting the world run off a cliff" is not their style. International bankers demand the ability to direct events. Always have, always will.
written by a french supporter ! , September 23, 2015
And what about a worldwide write-off debt, putting everything back to day 1, with new standards, new world currency (basket incl. gold and/or silver obviously....) ?
This write-off "solution" have been quite explicitely mentioned months ago by IMF Head, Christine Lagarde....
written by Brandon Smith , September 23, 2015
@French
Lagarde has mentioned a "great economic reset", but I'm not sure that she included the concept of a debt write off.
written by Karsten , September 24, 2015
Thank you Brandon for all your articles.
i am studying for years now when and how the SHTF.
whether the Fed increases the interest rates or not, i don't think this will influence the economy in a way that affects most of us. as history shows, a collapsing country will start war just before it finally collapses. if the economy is weak, there is the way of war and all the productions that comes with it to give a last boost to the economy. and your country is about to prepare for war in europe against russia. i am pretty sure that your country first becomes aggressive to others to use up their military equipment, and only after they run out of ammunition you will get a high inflation and local riots.
sorry for my weak english, i am from germany
written by Brandon Smith , September 24, 2015
@Karsten
If you will recall, it was Germany that first went through economic collapse before it was overrun by fascism and set out to initiate war. In fact, economic collapse very often precedes war, or, both war and economic collapse coincide. The idea that war staves off financial implosion is simply not reality.
