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Fed One Meeting Away From Creating A Doomsday Market Sinkhole

https://www.birchgold.com/news/doomsday-sinkhole/

https://www.edwardjayepstein.com/archived/moneyclub.htm

https://www.gutenberg.org/cache/epub/61/pg61.html
https://www.bls.gov/news.release/cpi.nr0.htm
https://www.federalreserve.gov/monetarypolicy/files/FOMC20121024meeting.pdf

Fed One Meeting Away From Creating A Doomsday Market Sinkhole

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

The effective Federal Reserve funds rate (the EFFR) has been sitting
at virtually zero for a long time now. It feels a little strange to
think about the fact that it was 14 years ago when the central bank
first helped to trigger the crash of 2008 and we are still dealing
with the consequences of it today. I only started writing for the
liberty movement two years before that. The amount of time that it
takes for economic disasters to develop is well beyond the average
person’s attention span. In fact, there are many people who are adults
today that have no clue what happened in 2008 because they were in
elementary school when it went down.

This is how the establishment is able to get away with the negative
changes to our national standard of living – because these changes
usually happen over the course of decades and almost no one notices.

That said, there comes a point in any financial collapse where the
floor is as thin as it will ever get. When the next shoe drops it’s
going to break right through along with all the furniture. At this
stage there is no slow moving crash, everything goes all at once. We
have already seen this scenario in action, and again, I don’t think
very many people remember the event.
Here’s what most people have forgotten

In 2018 the Fed began hinting at the institution not only of rate
hikes but also cuts to asset purchases and its balance sheet
simultaneously. It’s important to understand that effective rates had
been sitting near zero for almost a decade and cheap overnight loans
from the central bank were feeding one of the longest running
corporate stock buyback bonanzas in history. Stock buybacks and easy
Fed money facilitated a near endless bull market rally in equities.
The lack of real price discovery and the perpetual free-for-all was so
bad that the mantra for stocks became “Buy the F#ing dip!”

The assumption was that the Fed was always going to step in to protect
markets from falling. Why? Because they had done this for several
years, creating one of the biggest spikes in the Dow and Nasdaq of all
time. Why would they do anything different? But, in 2018, for short
time we witnessed what would happen if the central bank was to take
away the punch bowl and it was not pretty.

Closing in on mid-2018 the Fed began to hike rates and cut its balance
sheet more aggressively. We had seen small intermittent rate hikes
since 2015, but these had not coincided with asset cuts or changes in
overnight loans to major banks and corporations. The markets
immediately began to reverse more than we had seen in some time, gas
prices jumped and the yield curve flattened after rates rose a mere 50
basis points. It didn’t take much to cause a panic among investors.

So, to be clear, the major business and investment framework of the
U.S. has been so dependent on cheap credit from the Fed that even the
tiniest increase in interest rates was enough to almost unhinge the
entire system. Of course, bull market ticker trackers in the media
missed the whole purpose of this exercise.

The Fed reversed course on hikes and their balance sheet in mid-2019,
so the mainstream once again assumed that this meant the central bank
would “never” allow markets to fall.

Back in 2018 the argument was that there was no need for the Fed to
hike rates or drop assets because there was no imminent threat of
inflation. The average economist and the media refused to acknowledge
the many warning signs that high inflation was going to hit us in the
near term. But the Fed knows exactly what it is doing and they
understand that the trillions upon trillions of dollars they created
out of thin air after the derivatives crisis will ultimately come back
to bite the U.S. economy in the rear in the form of price inflation
and stagflation.

Another interesting fact about the hikes of 2018 is that Jerome Powell
had warned about the consequences of such actions years prior in 2012
during the October Fed meeting:

    “…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.” – Jerome Powell [emphasis
added]

Yet, he signed off on the policy anyway once he became chairman. Why?

Because he was ordered to. Former Fed chairman Alan Greenspan once
admitted that the central bank answers to no one in government, but
this does not mean the Fed is independent. The Fed is only a part of a
larger global central banking machine under the oversight of the Bank
for International Settlements.

This is not “conspiracy theory,” it is simply reality. The notion that
the Fed acts thoughtlessly, or that their goal is to keep the U.S.
economy afloat is just not true. There are much bigger plans at play.
The next deliberately Engineered economic crisis

My position back then remains the same today: The rate hikes of 2018
were a test run for a more aggressive and deliberately engineered
crisis down the road. The Fed has its own agenda, it does not care
about protecting U.S. markets, nor does it even care about protecting
the U.S. economy in general.

I hold that the Fed is a weapon for social and political change within
America and part of its job is to greatly reduce the standard of
living of the population while making it appear as if this decline is
a “natural” consequence of the U.S. system.

Keep in mind that none other than Karl Marx was insistent that central
banks were a primary pillar of a socialist/communist system and its
ability to maintain control of the public. As Marx noted in his
Manifesto Of The Communist Party written with Fredrick Engels,
“despotic inroads on the rights of property” would be “unavoidable as
a means of entirely revolutionizing the mode of production.” In other
words, in order to meet their revolutionary goal, communists would
need to destroy property rights.

Among his ten requirements for a communism government, number five reads:

    “Centralization of credit in the hands of the state, by means of a
national bank with State capital and an exclusive monopoly.”

Control of the currency and credit framework means control of the
population of any given nation because it allows a central authority
to reduce the standard of living “scientifically.” That is to say,
they can create economic decline or collapse out of thin air.

But why do this at all? Because financial desperation is the fastest
way to create public dependence on a central authority.

Every collectivist regime in history has used poverty and
near-starvation, or government rationing and management of production,
as a means to keep their populations under control. This is nothing
new but for some reason many people think this strategy will never be
attempted in America. They think the establishment “needs” the
American economy intact. They are simply delusional.

When the government and the elites behind government become everyone’s
Mommy and Daddy and the sole providers for the means of survival, it
is unlikely that the citizenry will try to rebel. That is to say,
people rarely bite the hand that feeds them.

So, central banks and their corporate and political partners follow
the Marxist model and seek to become the hand that feeds; by hook, by
crook or by financial collapse if necessary.

I have covered this agenda of central banking and the Fed in many
articles the past year, but what we now face is the inevitability of
Fed rate hikes. Yet I still see many analysts in the mainstream and in
the alternative media who refuse to admit the chances are high that
the central bankers will again engage in a rate hike demolition, only
this time they are unlikely to have mercy as they did in 2018.

What has changed since the last tightening cycle? Well, in 2022 we now
have immediate and obvious stagflation with price inflation of most
necessities hitting 40-year highs. This is something the alternative
media has been warning about for some time and now the moment has
arrived. Forget about the CPI print, it’s truly irrelevant and doesn’t
even account for food, housing and energy. What matters is the average
American’s wallet and how much it is being drained.

Unfortunately, it’s only going to get worse. The Fed has created a
Catch-22 situation in which inflation will hit hard regardless of
whether they hike rates.

Get ready for the yield curve to flatten again and for long term
Treasury bonds to be dropped by most foreign investors. Also, get
ready for the value of the dollar to plummet further, after a short
initial spike, as stocks fall.

I believe the Fed will stick with rate hikes this time because they
have to at least be seen as “trying” to do something about inflation –
the same inflation the Fed themselves created through over a decade of
fiat money printing and easy credit.

Price inflation will be aggressive this year and going into next year
regardless of what the Fed does. Costs are going to rise exponentially
for most people. This does not mean that we will be dealing with
Weimar-style inflation with wheelbarrows full of Benjamins to buy a
loaf of bread’. I’m betting we would see government price controls
before that happens (which will trigger mass shortages of goods).

However, it doesn’t take much in terms of price spikes to cause a
breakdown. An increase of 50% in overall costs would crush a large
number of U.S. households and make them desperate for aid, perhaps in
the form of Universal Basic Income and ultimately a complete sea
change over to some form of digital currency.

The Fed has used interest rate hikes into economic weakness in the
past, including at the onset of the Great Depression. We have also
seen the Fed increase interest rates as high as 12.3% as they did
during the inflationary crisis of 1974. These hikes crushed a lot of
small and medium businesses at the time. In fact, my own grandfather
had expanded his trucking company with multiple vehicles and millions
of dollars and a large amount of credit in the early 70s, only to have
his business destroyed by skyrocketing interest rates. The 1970s
stagflation crisis was nothing compared to what we now face.
Prepare today, because tomorrow will be too late

The conclusion is obvious – get prepared. Price inflation is already
here and I believe climbing credit costs are on the way. Getting
prepared means stocking staples now that you and your family use
regularly. Buy at the lower prices of today so you don’t have to buy
at the much higher prices of tomorrow. If you have debt I suggest
dealing with it now if you can, and don’t take on any new debt if you
can help it.

Do not expect that borrowing at fixed rates today will assure you
fixed rates tomorrow.

Invest in commodities that don’t lose value to inflation, especially
physical precious metals. There will come a time all too soon when
street prices of gold and silver will explode far beyond the fake
paper-gold markets.

Most importantly, organize with like-minded people in your community.
Trade must decentralize and localize to survive stagflation, and each
community is going to need networks of producers and marketplaces to
facilitate the shift. We can no longer rely on the supply chain and
the global economy; as a culture we will have to relearn how to
provide for ourselves and our loved ones.