The Fed Is Taking The Punch Bowl Away – But The Inflation Crisis Will Continue To Grow
Four years ago the overall sentiment among most alternative and mainstream economists was that the Federal Reserve would NEVER hike interest rates, taper stimulus or reduce their balance sheet into economic weakness. In fact, this was one of the few viewpoints that the mainstream media and independent economists actually agreed on. A few of us had different ideas, though.
The argument is based on a dangerous assumption – That the Fed’s goal is purely to prop up and extend the lifespan of the US economy and stock markets. If you have been tracking equities in the Dow or the Nasdaq for the past decade, then that might seem like a safe bet. For several years the central bank has consistently added stimulus or cut rates whenever stocks started to drop more than 10%, and this is what launched that famous investor mantra “Buy The F’ing Dip.” It was a sure thing; all you had to do was buy stocks after a correction of around 10% and the Fed would come in to save the day with more inflationary QE.
However, things change and it is foolish to assume that the Fed actually cares about maintaining the US economy. If they did care, they would not have tried to hide the inflation threat for so long. Hiding it hurts the US far more than admitting to it as soon as possible.
My position on the Fed is the same as it has always been: The Federal Reserve is a suicide bomber. It is a useful weapon for the globalists at the BIS, the IMF, the WEF, etc. Those globalists want a new financial crisis so that they can implement global changes to the way money works and the way various national economies function (the Great Reset). They want a single global financial authority and a one world digital currency system. They want to be able to dictate all trade around the planet using a single mechanism.
In order to achieve these ends, they need the Fed to blow up the US economy, and that is exactly what they have done; most people just don’t realize it yet.
As I noted in my article ‘The Fed’s Catch-22 Taper Is A Weapon, Not A Policy Error’, published last year:
“If the Fed raises interest rates into weakness and tapers asset purchases, then we may see a repeat of 2018 when the yield curve started to flatten. This means that short term treasury bonds will end up with the same yield as long term bonds and investment in long term bonds will fall. A dumping of long term bonds causes a decline in currency value and a flood of dollars back to the US. Result? Inflation.
No matter what the Fed does the consequence will be inflationary/stagflationary. The only difference is that if they taper there will also be an immediate decline in stocks and the overall crash will happen faster. The presumption by some is that a reversal in stocks will lure more money into the dollar, and this might happen for a short period of time. However, as mentioned if the yield curve flattens or there is instability in Treasury bonds there will be no saving the dollar either…”
The only question was one of timing. When would the Fed try to pull the plug and allow the inflationary disaster to unfold without hiding it any longer? Well, now we know…
As I have been predicting, the Fed is embarking on an active campaign to hike interest rates by 50 bps or larger per meeting (including potential emergency meetings). Despite the hawkish tapering presented by the Fed, CPI prints continue to rise and now global bankers (and even Joe Biden) are suddenly admitting that inflation is hitting crisis levels after claiming all last year that the problem was “transitory.”
Some members of the Fed have sought to temper concerns about high rates by claiming that these hikes will be limited to around 2% – 3%. This is likely a lie. The jump in the US money supply and the level of inflation I see indicates that interest rates of 2% to 3% will do NOTHING to stop the crisis. The true inflation data collected by tracking sites like Shadowstats.com also supports this position. The Fed will use the ongoing price increases and stagflationary pressures as an excuse to continue hiking rates well beyond 3%.
The money supply issue is key here, because the Fed does not acknowledge price inflation so much as they use money supply as their rationale for changing policy.
It’s not a rule but it is certainly a habit that the Fed likes to change the way they calculate inconvenient economic stats whenever there is a major crisis. They changed the way inflation was measured in the 1980’s after the near disaster under Jimmy Carter (not his fault really, it was Nixon and the Fed completely removing the dollar from the gold standard a few years earlier that actually caused it). They have also changed the way GDP is adjusted multiple times, and they have changed how official unemployment is reported. In most cases, these changes are designed to HIDE a problem rather than trying to gain more accurate data.
For example, the Fed ended its reporting of M3, which is a more fine tuned measure of the total money supply of US dollars circulating around the world (they claimed M2 was just as good). This measurement was inconvenient to the Fed because inflationary policies are ever present and accurate reporting might cause “alarm” within the American public. So, they simply stopped making the data available.
Maybe it’s just a coincidence, but the Fed ended M3 in 2006 right before the credit crisis of 2007/2008 began, and right before they introduced tens of trillions of fiat dollars in bailouts and QE stimulus. One might think they KNEW a debt implosion was coming and that massive inflationary policies would be the response…
Another change has been made to M1 and M2 calculation (a less accurate measures of US money supply), and this was done in 2020, right in the midst of the covid pandemic response. Strangely, this time the Fed’s changes involved adding savings deposits from smaller accounts to the overall money supply data, which means the reported money supply jumped substantially.
Why did they do this? I have a couple theories.
Theory #1: In 2020 the Fed was already in the midst of one of the most pervasive stimulus programs since the bailouts of 2008/2009. They created over $6 trillion in new money in a single year, and that’s just the official number, not accounting for overnight loans and other programs. This money was injected directly into the general economy and into average people’s accounts, as well as into the coffers of international corporations.
It is possible the Fed changed how they calculate M1 and M2 because they wanted to hide the true amount of dollars they were creating from thin air. If you try to make the argument that the Fed caused our current inflationary crisis, and you use M1 or M2 as an example of this, the central bankers can now say “Hey, that big jump in the money supply is not because of our fiat printing, we added savings accounts to the calculation and that’s why it’s so high.”
Of course, then you would have to believe that the dollars being held in small savings accounts across the country is enough to multiply the total money supply by FIVE TIMES. Yeah, I don’t think so. To summarize, the Fed changed its data reporting in a negative way on purpose in order to obscure the role they are playing in the inflationary disaster now unfolding.
Theory #2: The central bank WANTS to raise interest rates into economic weakness without argument. So, they adjusted the money supply calculations to be slightly more honest. Whether or not this giant leap in M1 and M2 in 2020 is due to savings accounts being added or due to elicit Fed printing doesn’t matter. The point is, the Fed intends to jack up interest rates and taper in the extreme while GDP and Retail are in decline and while wages are becoming stagnant. It’s the same thing the Fed did at the onset of the Great Depression, which made the depression far worse than it would have been otherwise.
That is to say, the Fed is seeking to sabotage our economy, but they need the data to justify their actions. They need the data to more honestly reflect the inflation threat so that they can hike rates and taper into economic weakness while avoiding any blame for the inevitable consequences.
In either case, the Fed’s actions suggest that inflation is going to continue unabated, they know this is going to happen, and they are merely positioning themselves to deflect blame.
The argument among independent and mainstream economists alike will now be that the Fed will “capitulate” and reverse course on tapering as soon as they “realize their error.” Sorry, but the central bankers are well aware of what they are doing. I suspect some liberty movement people want to believe the Fed will continue stimulus measures because they want the gold and silver market price to go up.
Don’t worry, prices will go up eventually because there is zero chance that the Fed will stop inflation/stagflation with a 2%-3% interest rate hike. Also, as the economic war with the East continues to heat up, nations like the BRICS will continue to dump the dollar as the world reserve. The physical price of gold and silver will decouple from the manipulated paper ETF price. It already happened in 2020-2021, and it will happen again soon.
Mainstream financial commentators want to believe the Fed will capitulate because they desperately want the party in stock markets to continue, but the party is over. Sure, there will be moments when the markets rally based on nothing more than a word or two from a Fed official planting false hopes, but this will become rare. Ultimately, the Fed has taken away the punch bowl and it’s not coming back. They have the prefect excuse to kill the economy and kill markets in the form of a stagflationary disaster THEY CAUSED. Why would they reverse course now?
Just remember WHO is really to blame for the mess as prices continue to spike and the economy destabilizes. There needs to be a reckoning, and central bankers should not be allowed to escape without punishment.
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Brandon is the founder and chief strategist behind the Alternative Market Project. His goal is to create a barter networking hub and educational gathering place for every American across the country who wishes to decouple from our current collapsing financial system and build something better. Getting people out of their homes and meeting face to face to organize meaningful relationships, and eventually, entire free market communities designed to shield cities and states from economic and political danger; this is the mission of the Alternative Market Project.