Posted originally on Mar 7, 2024 By Martin Armstrong
Those who follow this blog already knew that the Federal Reserve would not drop rates in the future due to unsustainable fiscal policies paired with America’s increasing involvement in foreign wars. All of the talking heads were preaching that rates would significantly decline to pandemic levels, as if that were the historical norm. Every fiscal policy in recent years has exacerbated inflation and the Fed cannot keep up with government spending. QE FAILED. The artificially low interest rates of the recent past were completely unsustainable and relied on outdated theories.
The outdated understanding based on Keynesian Economics remains to increase the supply of money and it MUST be inflationary. The Fed raises rates to reduce consumption and lower rates to stimulate consumption. It’s a very nice theory, but when actually tested, it utterly fails. Lower rates will NEVER cause people to invest UNTIL they believe that there is an opportunity to invest. We are watching the big players withdraw from equities, let alone government debt. We are in a private wave where money is running off the grid at a rapid pace.
The peak in interest rates took place in 1899 at virtually 200%. Yet, 1929 was the real bubble top and it peaked with 20% interest rates in call money on the NYSE. In theory, the biggest boom should have been met with the highest interest rate. In truth, the “real interest rate” as I have defined it is when the interest rates exceed expectations. If you think the stock market will double, you will pay 25% interest.
As you can see, while interest rates hit nearly 200% in 1899, the share market did NOT crash percentage-wise anything as it did following 1929. Look, there is a lot more to this than meets the eye. Everything must be addressed on a global scale for it all depends also on the direction of capital flows. There is just a lot more to this than simply the money supply and interest rates.
Now, Powell continues to explain to the public that VOLATILITY and economic conditions are beyond the control of the Fed. “We believe that our policy rate is likely at its peak for this tightening cycle,” Powell said. “If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. But the economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured.”
All the news of inflation waning, including recent data, is inaccurate propaganda intended to calm recessionary fears. Even by the government’s data, inflation is up 3.1% compared to last year. It was an unprecedented moment when Powell broke with Washington and criticized the government for their unsustainable spending. The Fed NEVER criticizes the government, despite the two being separate.
Hence, I say to stop blaming the Fed. They are not the ones creating all the money but are working to match monetary policy with unsustainable fiscal policies. We are looking at trillions in deficits per year. There is no restraint when creating new massive spending packages. Then people blame the central bank with no concept that it’s only a fraction of “money;” the real issue is CONGRESS.
Listen, interest rates cannot decline in the face of war. The 2020 yearly array showed a turning point for a high in 2022 and a possible correction into 2024. I explain this in more detail on the Socrates private blog but buckle up for the year ahead.
Centinel2012 