Powell is likely going to have to raise interest rates. Yes. As inflation increases, the way to curb it is through raising interest rates. The fed originally stated that rates weren't going to rise until at least 2022. However, it seems that we may see a rate increase sooner than expected. Right now, the Fed has a target rate for the dow jones. Investors aren't at the controls of the markets, the Federal Reserve is. But, they do have a crash planned, and it will be the greatest crash our nation has ever seen. But they want the government to borrow even more before this happens. The Fed doesn't want to discourage our government from borrowing even more, by crashing the markets now. But they will have their scapegoat to blame the greatest crash in history on. Perhaps their scapegoat will be as simple as using the horrendous second-quarter results as their excuse to "Pull It." Whatever scapegoat they use, I believe it will happen. I believe a worldwide market collapse is part of their planned and executed pandemic. In the event of hyper-inflation, the debt would look negligible, and the rates would increase rapidly. The line between self-consuming growth (debt grows faster than value, current and past 2 decades), and hyper-inflation is thinner than we may realize. I'm not trying to be too cynical. My ears hear how it used to work, before infinite balance sheets, negative real yields, exodus of foreign purchases, and huge debt to GDP figures came to be. My eyes question if this is a market at all. Are there any voluntary market participants left in this Market who are not the Fed or obligated by regulation? It seems if there are any they could effectively set the rates. I think I still cling to the opinion that the Fed controls this number precisely where they want it. The Fed will never admit any wrongdoing. Remember Ben saying that he never saw the crash of 2008 coming. Other than printing money for themselves and their buddies, the other thing they are good at is obfuscating and outright lying. The truth is a for-profit, politicized, central authority that is incapable of measuring inflation should not be determining interest rates. At present, the tail is wagging the dog. The demand for the debt should be determining interest rates, not the other way around. The attempt to suppress recessions/depressions in pursuit of perpetual economic growth and inflation is the problem. Recessions/depressions are inherent in debt-driven economies/markets and need to be allowed to play out without intervention. The difference between Capitalism and Socialism is that Capitalism allows financially not sustainable entities to fail, to cleanse the economy of unproductive debt. That is also why Capitalism does not destroy economies. Unnecessarily low-interest rates and QE are forms of Socialism and are unsustainable. Link the rate of change of private sector debt to the interest rates to allow the markets to determine the rates. End the central banks and neo-classical economic theory. Fed had almost 12 years to correct the greed and mistakes of 2008, did nothing, and now we are back to Zero Interest Rates, QE and Printing. Welcome back to The Atlantis Report. You are here for your daily dose of the truth, the whole truth, and nothing but the truth. Please take a second to hit the like button, hit the subscribe button, and don't forget to also hit the notification bell. Thank You. The US government continues to run massive budget deficits. That means it has to sell bonds to finance the debt. So, who’s buying all these Treasuries? The Federal Reserve is buying a lot of them as it continues to monetize the ever-growing federal debt. Between March 2020 and March 2021, the central bank monetized more than half of the massive pandemic debt. The central bank makes all of this government and spending possible by creating artificial demand in the bond market. The Federal Reserve buys Treasuries on the open market with money created out of thin air. This supports bond prices and keeps interest rates artificially low. Without this central bank intervention, there wouldn’t be enough demand in foreign and domestic markets to absorb all of the bonds the US Treasury needs to sell. Interest rates would skyrocket and make the cost of borrowing prohibitive. Since March 2020, the federal government has added $4.7 trillion to the national debt. The Federal Reserve went hog-wild with debt monetization. The Fed bought $243 billion in US Treasuries in the first quarter of 2021 alone. Since it launched QE Infinity in March 2020, the Fed has purchased a staggering 2.44 trillion dollars in US government bonds. In other words, the Fed has monetized more than half of the US debt accrued since the beginning of the pandemic. No other entity has bought more US bonds than the Fed – not foreign investors, not US banks, and not even US corporations and individuals. The Federal Reserve now holds a record 17.6% of the total US national debt. The Fed’s share of US debt load exploded from 9.3% in Q1 2020 to its current level. The Federal Reserve is the biggest player in the US bond market. This raises an important question: how can the central bank even consider tapering QE when the federal government still has trillions in spending coming down the pike? President Biden has proposed a 2 trillion-plus infrastructure plan. He has proposed the American Families Plan. And there will undoubtedly be more spending plans in the future. The administration claims it can pay for all this through tax hikes. This certainly won’t happen. These programs will cost more than projected and tax revenue will come in under forecasts. That means the government will have to borrow even more money and the Fed will have to monetize more debt. If the central bank does take its thumb off the bond market, interest rates will spike. That’s not a viable option when your entire economy is built on borrow and spend. QE was the FED buying at the longer end of the curve. The Quantitative Easing of 2008-2009 was all about reducing the supply of long-term debt in hopes of lowering long-term rates, which they hoped would revitalize the real estate market. It also reflects the reality that the Fed has lost control of interest rates. The entire theory of QE was to increase the money supply in circulation by purchasing government bonds. That would inject cash into the system since the Fed does not and cannot create debt, for it has no such borrowing authority." Since foreigners held much of the long term debt, dollars flowed out of the US as the FED bought these bonds. The Chinese unloaded almost all their long term treasuries and bought short term and said thank you very much. The money never went to the intended purpose, which was real estate. The FED seemed to overlook the little fact that foreigners own US debt, and it is not all owned by Americans. Whoops! The FED is also still acting as a middleman and loaning overnight to banks and investment banks, because they still refuse to lend to each other as US banks do not know the exposure each other has to Europe and its banks which is rapidly deteriorating especially now with the pandemic hitting supply chains, European firms earnings home and in Asia especially Germany with car sales plummeting. The FED is desperate to push short term rates down, (private rates by keeping overnight lending going as they have no choice which spiked 10% when banks stopped lending all because confidence is lost in Europe). This would have spread to consumers and businesses with everyone paying 10% more on credit cards, car loans, leases, construction loans, home improvement loans, business revolving lines of credit, business receivable lines of credit, in fact, any short term loans. This would have hit the construction and home improvement sector hard as even loans for appliances, for example, which most people finance would have shot up, causing a domino effect along with hitting the auto industry even more badly than what it already being hit. This is the coming disconnect between private and public (treasuries) interest rates. The fact is banks never did entirely pass on their much lower cost of capital to consumers and businesses. And the spread between private and public rates have been at historic highs. Interest rates for consumers and businesses should have been much lower, and savings rates should be higher. I think it is a myth that the lowered rates will be magically passed on to borrowers in the form of lower rates. Many banks have previously been lowering savings rates before the cuts. Many still pay 29% on credit cards while savings are being wiped out! The FED has lost control of rates and is in a panic, and they will eventually lose the battle to keep private rates for consumers and borrowers as low as they are. As long as the FED can still buy short term treasuries and international capital flows still flees into these, also bidding up prices and collapsing yields public rates will remain low but again private is a different animal. Eventually, the FED will lose this control too. The long-term sustainability of the credit system is based on differences between the “market interest rate” and the rate at which an average business can borrow, i.e., the “natural interest rate,” which is close to that of the structural growth of the economy. When the market rate is much higher than the natural rate, as has been the case in Italy for the past 15 years, Japan in the 1990s or the United States in the 1930s, the market rate is artificially removed by the central bank. The result is an increase in the value of existing assets financed by debt and a license allowing zombie businesses to survive when the process of creative destruction is stopped. The central bankers accused of this type of period tend to describe this decline as "secular stagnation" because they don't understand that their own policies are causing the problem. Central banks are issuing more and more paper to buy assets and suppress volatility in the credit markets. We must be in a worrying period ,since for the first time in fifty years the Bundesbank bought gold for its reserves. Do these central bankers know something we don't know about? In recent years, three critical awards, 10-year Treasury bills, crude oil, and the US dollar did not show any particular trend. The global economy is facing many concerns, and bond yields are at the lower end of their range. For the past four or five years, the US dollar has been stuck in a range. Oil prices are in the middle of their average price for the past five years. One of the most notable trends in recent years has been the outperformance of US stocks. With central banks easing again, bond yields are unlikely to fall. The elements are in place for a reassessment of the US equity market. If this scenario materializes, US stock prices could rise as valuations remain reasonable. While the price/earnings ratio of the S&P 500 is historically high, equity valuations compare more favorably to bonds than at the end of the 1990s. A recovery in confidence should lower their risk premium and favor a new notation. But when you look at the actual numbers, the demand is only robust because the Fed is in the marketplace. It’s unfathomable how Powell could claim with a straight face that the Fed isn’t monetizing the debt even as it effectively monetized more than half of the debt in the past year. On the flip side of the equation is inflation. The Fed effectively prints money to buy Treasuries and injects the newly minted dollars into the economy. We are already seeing signs of inflation heating up. CPI data came in much hotter than expected in April and we’re starting to see the markets show concern about rising prices. At some point, the central bankers will be faced with a choice – continue monetizing the debt and inflating the money supply or deal with surging inflation by letting rates rise. It can’t do both. And neither of these choices will play out well for the American people. In conclusion. The Feds racket is pretty simple. They are swiping the value of the cash in your pocket—every day of your life. This was The Atlantis Report. Please Like. Share. Leave me a comment. Subscribe. And please take some time to subscribe to my backup channels; I do upload videos there too. You'll find the links in the description box. You will also find a PayPal link if you want to make a donation. Thank you wholeheartedly to all those of you who have donated. Stay safe and healthy friends!
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