Guest Post by Martin Armstrong
I have warned that rates will rise BECAUSE the Federal Reserve will be criticized if they fail to do so when they are faced with a stock market that is rising. However, while one by one, several Fed officials have all signaled in recent days that the Fed is ready to resume raising interest rates as soon as this month, the real crisis for the Fed will be raising rates will strength the dollar and put even more pressure on Europe and emerging markets. Hence, the 64 billion dollar question is will the Fed abandon international policy objectives for domestic?
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Janet Yellen speaks today in Chicago on the topic of the Fed’s economic outlook. The pundits will scan ever possible word for any hint whatsoever of how likely the central bank is to raise its key short-term rate after it next meets March 14-15, 2017. Traders in futures markets have put the probability of a rate hike at 75%, according to data tracked by the CME Group. Last week the odds were just 50/50. With the rally in the share market this week, many are now fearing a rate hike.
Many Fed officials are suggesting that the strengthening U.S. economy warns of higher inflation and a surging stock market has confirmed a potential rate hike. On Tuesday, William Dudley, president of the New York Fed, said the case for raising rates had “become a lot more compelling”. Robert Kaplan, of the Dallas Fed, said he thought the Fed would likely raise rates “in the near future.” Then Lael Brainard, a Fed board member, also said she thought the case for another hike was strengthening: “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation.” Jerome Powell, who is another board member, said on CNBC: “I think the case for a rate increase in March has come together, and I do think it is on the table for discussion.”
Back in the 1980s, we would get a phone call that the Fed will raise the rates that day. Banks were not proprietary traders as they are today back then so the calls were really to make sure people did not get hurt. That has become insider trading these days so what we get is Fed officially attempting to choreograph their intention for the very same purpose that the marketplace is not hurt by their actions.
Last December, the Fed raised its benchmark rate by a quarter-point to a range of 0.5 percent to 0.75 percent. It was its first increase since December 2015 following our turning point on the Economic Confidence Model 2015.75 which was October 1st, 2015. When the Fed raised its key rate from a record low back in December 2015, it did so right on target for the change in trend.
Domestic Policy Objectives will win out over International. This will only have the same impact of causing capital inflows for the dollar will rise. Yet the Fed has no choice. To do nothing will invite attacks by the Democrats who will say they are only helping the rich get richer watching the stock market rise irrespective of the economy. What we are facing is asset inflation FIRST. That means Draghi and the ECB will be in even a more difficult position trying to maintain negative interest rates that have completely FAILED to revitalize the European economy. It has been 8 years of a complete brain-dead economic policy by the ECB. The question is will the ECB be compelled to end its failed policy and raise rates itself? Talk from behind the curtain is that Yellen keeps telling Draghi he is wrong.
The Fed needs to raise rates to ensure the market drops like a stone. There was justification to raise rates under Obama (the last time in 12/2016 doesn’t count – Obama was effectively out of office) more than once for a 1/4 basis point – BFD.
Now Yellen will go wild with 3 jumps this year (my call).
Just like Ginzburg on the Not So Supreme Court who has shown her impartiality.
Fed rates have become more of a political instrument than an economic one, being used for political purposes at least as often as valid economic ones.
Of COURSE the Fed needs to finally raise rates after ten years of ZIRP. Because Hitler.
The FED is going to have no choice. They have backed themselves in a corner. On the one hand, they have deprived savers for 10 years of ANY return. Now, they don’t give a good damn about you and me, however they DO care about the large insurance companies, pension funds, and other entities that make their laddered investments in treasuries to support their beneficiaries. That is a problem. Just wait until the pension that blows up is not just the one Teamsters union, or Texas cops, but CALpers.
On the other hand you have most of the rest of the economy that has been gorging on never before in the history of mankind low interest rate money. Who dies? Well, both on the trajectory we are going. You can’t mathematically do both. That is like attempting to make the sun set and rise at the same time in the same part of the planet. Not possible.
The debate at the FOMC has already gone from; can we raise? To, how slowly can we raise without breaking something. They are in the position of the tactical bomb squad guy with the needle nose pliers attempting to diffuse a bomb. He hopes that he can cut the correct wire before the clock runs out….
The FED needs to be abolished along with the fraudulent practice of fractional reserve banking. NO group of people, regardless of who they claim to be (and in this case they are unaccountable criminal bankers) should have this much power over the global economy or the economy of the US. The ONLY “force” that should be determining the cost of money (interest rates), the supply of money, etc. is the FREE MARKET (no, this is most certainly NOT an advocacy of turning such things over to the unaccountable criminals in congress). A free market in currencies, the restoration of the legality of using gold/silver/etc. for contracts and exchange, the elimination of ALL taxation on precious metals, etc. is the ONLY proper solution to take economic control out of the hands of these criminals and the criminals in the Federal Government who profit and benefit from the unlimited “created out of thin air” resources the Federal Reserve provides them. Indeed, if one is to continue to play the money-manipulation game, then rates need to rise, but the only MORAL stand is one in favor of the FREE Market and against the existence of the Fed entirely.
Unfortunately, all of our financial systems and institutions for over a century have developed around the Fed and tearing the Fed down takes the rest of the financial system down as well.
It’s like tearing the foundations out from under a skyscraper that everyone lives in, not a good thing for them. Some will survive, most will not and the death toll will be astronomical.
It’s going to take as long to get rid of it, barring adsorption into a larger international version of the same thing, as it did to create it.
“It’s going to take as long to get rid of it, barring adsorption into a larger international version of the same thing, as it did to create it.”
Yes, I am more than sure this is what they are doing as we speak. Trump, for all we know, is in on it also.
Well, Mr. Liberty has the right idea. End the Federal Reserve. They are legally counterfeiting money, through the fraudulent practice of fractional reserve banking, and screwing all of us over in the process.
In the past, counterfeiting was punishable by hanging. It needs to be brought back.
I think Ron Paul had one of the better ideas to get rid of the Fed. Simply allow competing currencies to circulate and be used as money (in contracts, etc. – which is currently illegal). Gresham’s law says that good money will push out bad if let to the marketplace. The dollar (Federal Reserve Note) is backed by nothing other than $20 trillion in real debt, $250+ trillion in unfunded liabilities, and the force and violence of the US government that empowers the continued theft of trillions from the productive sector of society. Were a gold-backed currency (or gold itself or silver) allowed to circulate and be used as money, or even the Euro, or a gold-backed Reminbi/Yuan, or similar, the dollar would quickly fall as the reserve currency of the world and the desired currency of the US. As more and more people saw how well-protected their savings were from inflation when denominated in gold/silver or even a superior foreign currency, the end would be right around the corner for the Fed. Indeed, we have had 100+ years of the criminal bankster establishment in this country, and the collapse, even if gradual, would be devastating, but so be it. The end will most certainly come one way or the other. $270+ trillion in debts is unsustainable, unpayable, and is being exported around the globe to all who are forced to hold US dollars at the point of a gun (or similar foreign policy programs). Just because it will be difficult, doesn’t mean it should not happen.
I agree, to some extent with the concept of competing currencies. However I think there may be some practical issues with that. Imagine a small business attempting to accept money from many different customers. That, in itself may not be too difficult, think the VISA, Mastercard logos on the front of stores. The issue may be in dealing with vendors for stock, logistics etc. Depending on number of vendors, an owner would almost need a trading floor just to figure out all of the currency pairs in order to exchange their “dollars” with maybe 10 or 12 other competing currencies just to order more stock.
A great start is to get rid of the fed. That is a given. Counterfeiting ANY currency by one entity is doom for anyone else using it. Just natural law. However we must also decide on a “basket” of competing currencies, which would be similar in value and preference, and then use those, or commerce would be quite difficult. And, of course the cardinal rule of ALL currencies. Keep the damn government out of the money “business”.
Let the market decide and something functional will rise to the top quickly enough. As you said, keep government OUT and the problems will vanish nearly as quickly. Most people do not at all appreciate that the presence of government (rules, laws, restrictions, mandates, money, guns, etc.) in the marketplace is the REASON why things look and function the way they do. NONE of this has anything to do with the FREE MARKET. Much of it may be the market’s response to the tyranny of government intervention, but absent government, it would not be done that way.