Fed Chair Jerome Powell States Ongoing Rate Increases Are Appropriate Given Strength of Labor Market

Posted originally on the conservative tree house on February 7, 2023 | Sundance

This guy is really a piece of work.  Fed Chairman Jerome Powell delivers remarks to the pontificating pustules at the DC Economic Club.  Within his remarks, notice how Powell used the word “disinflation” to describe how prices are starting to drop in the “goods sector.”

Of course, durable goods are dropping in price, fewer consumers have any money to buy them.  Yes, excess manufactured goods created by the disappearance of buyers will naturally lead to lowered prices by those who need to sell them.  Our economic problem is not, and was not, ever an outcome of excessive demand for durable goods.

Our economic problem is the scale of energy price increases that are chewing through paychecks and driving up the costs of high-turn consumables like food.

Massive price increases for food, fuel, energy, electricity, home heating and natural gas eating up paychecks.  There is no room for discussion about the next phone, refrigerator, or new car that might be needed.  Simultaneous to ignoring this issue, Chairman Powell is giddy that wages are not rising.  WATCH:


The process of bringing inflation down to the Fed’s goal of 2% over time “is likely to take quite a bit of time. It’s not going to be, we don’t think, smooth. It’s probably going to be bumpy,” Mr. Powell said Tuesday. “So we think we’re going to have to do further [rate] increases, and we think we’ll have to hold policy at a restrictive level for some time.” (WSJ Article)

Never has this cartoon been more apropos.

Interest Rates & the Fed

Armstrong Economics Blog/Interest Rates Re-Posted Feb 2, 2023 by Martin Armstrong

The Federal Reserve raised the benchmark by 25 bps, as expected. The Fed fully understands that the manipulation of the CPI is a necessary aspect both for containing government benefits and understating inflation also results in high tax revenues. The market loves hope, and as a result, they focused on the warning that we’ll be in restrictive territory for just a bit longer. Most still believe that there will be a slowdown in inflation just ahead.

The Fed’s cautionary commentary saying that the “disinflation process” has started triggered shares to jump ending up 1%. This shows how insane the analysis had become that they cheer a recession and think that lower interest rates are bullish for the stock market. Obviously, they just listen to the talking heads on TV and have never bothered to look at reality. When interest rates decline, so has the stock market. Interest rates rose for the entire Trump Rally, and they crashed during the Great Recession of 2007-2009. For the life of me, I just shake my head when the talking heads cheer lower rates and spread doom and gloom with higher rates.

Is the Fed a Den of Thieves? Or Independent?

Armstrong Economics Blog/Central Banks Re-Posted Jan 13, 2023 by Martin Armstrong

COMMENT: The Fed….why would anyone put a greedy fox in charge of the hen house. Mr. Armstrong, you, of all people have more than a passing acquaintance with the corruption of the big banks. And these are the kindly gentlemen that have been appointed to “guide” monetary policy for our greater good. Simply don’t understand why you continue to extend respect & credibility, to a gang of thieves.



REPLY: There is a HUGE difference between the New York Bankers and the Federal Reserve. In fact, I am in favor of barring CEOs from Goldman Sachs to head the Fed, Treasury, or any government agency. The Fed has its own agenda and it is not to flood the economy with money for Biden. Powell has said the Fed will not be into the climate change business which is the opposite of ECM and Christine Lagarde, who is a politician, and why the ECB cannot survive. The Feb may have bankers, but their self-interest is against that of the politicians. Additionally, do not paint all the bankers with the same brush as Goldman Sacks which I agree is a giant squid and I believe is a major threat to the world economy.

The Fed was originally intended to be a private bailout entity to replace J.P. Morgan and what he did during the Panic of 1907. Stimulation occurred through buying corporate paper – not government!

The Fed would expand the money supply during periods of economic decline and it would contract the money supply as the corporate paper was repaid. There was no such authority to perpetually create money at will on some covert perpetual basis. A banking crisis, as we have now in Europe, occurs when banks cannot meet the demand for withdrawals because they lent the money long-term. They would have to sell their portfolios at discounts to raise cash to meet the demands of depositors. Elasticmoney would meet the demands of depositors without having to liquidate the portfolios.

Elastic money was not some evil conspiracy. It was to keep money flowing when banks were contracting. Keep in mind there were also limitations on banks to regions. The Clintons removed all restraints and allowed interstate banking which siphons money from local regions and deploys it someplace else. If we returned the central bank to performing its original function, then the economy would be much more stable. Our problem is we live in a political economy where politicians just cannot keep their fingers out of everyone’s pockets.

There have been such shortages of cash even during Fed expansion policies because people will hoard their cash in times of economic uncertainty. This is why there are still hoards of Roman coins discovered. Human nature has not changed. During the Great Depression, over 200 cities issued their own money because there was such a shortage commerce could not continue.

We have exchanges even issuing Depression scrip backed by the financial markets. There just was not enough money to facilitate the economy. That is why the Federal Reserve has the authority to create money – not the treasury. We even have the first appearance of such private money that took place in 1815 thanks to the War of 1812, but then to the eruption of Mount Tambora which resulted in the Year without a Summer – 1816.

Here is a private note from 1837 due to the Panic and the resulting shortage of money then as well. The entire ability of the Fed to have the power of elastic money was to be able to create money is times of distress. People have focused on the Fed’s balance sheet and spun all sorts of conspiracy theories. What they do not address is what I was warning the Fed about buying in the 30-year bonds was NOT increasing the domestic money supply because the sellers were mainly China. The money was going outside the USA. This confusion led to others claiming MMT is now the economic theory because increasing the money supply failed to produce inflation. Once again, these ideas were entirely based on a domestic fish bowl economic model. We live in a globalized economy and the expansion of the money supply has no real bearing on anything because those theories assumed the money remains domestically – which has not been the case.

When WWI came, Congress ordered the Fed to buy government paper; not corporate. They never returned it to its original design. When Great Depression came, Congress at the direction of FDR usurped all branches and established a single national interest rate and the board was to be appointed by the President. They ordered the Fed to support U.S. debt at par during WWII to prevent interest rates from rising.

UB Fed-1951

As World War II approached, politics took control of the Fed. Once again the Fed was ordered to support US government bonds at par. This decree was not lifted until 1951. The Fed remained fairly independent thereafter until the Vietnam War. Politicians viewed its authority to increase the money supply on an elastic basis as meant that inflation was their problem, not Congress’. Politicians began to spend whatever they wanted to win elections and criticized the Fed if inflation appeared when they had no control over the fiscal spending of Congress.

The is independent and it has been at war with Congress before. The elastic money power is necessary because the Fed has expanded and then contracted the money supply. I would stress that the Fed returns to its original design and it should buy ONLY private paper – not government. The Fed is stimulating the government under the orders from WWI to buy government paper. It should no longer buy government paper – PERIOD!

The Fed & the Misinformation

Armstrong Economics Blog/Central Banks Re-Posted Jan 11, 2023 by Martin Armstrong

QUESTION: Marty, I was there at your Berlin conference when one of the attendees openly admitted he was from the Bundesbank. He was very open about it. There have been other central bankers at your WEC. I suppose they have to attend just to get a whiff of the trend. Powell has come out and asserted the Fed’s independence and it will not make policy based on climate change. That was very refreshing.  The bulk of analysts still cry about the creation of money at the Fed are insisting that a recession is coming because when the Fed stops printing, we will see a correction worse than 2008. Some call this a confetti party. Many claims to be fed watchers, but have never stepped inside their door. Meeting the people I have at your WEC events, you are always in the center and I can see it is not your opinion but Socrates that they want to listen to for an unbiased view. So will there be a huge correction when this party is over or have the fed watches been talking sophistry with no real insight?


PS: What about a Dubai WEC because the world imposes vaccine passports?

ANSWER: I know, This is the typical myopic domestic view that the Fed is in a very dangerous situation and a wrong move in any direction could cause a financial system meltdown worse than 2008. The argument is that since we have a debt-based monetary system if the Fed stops increasing the money supply this will lead to an economic withdrawal process that will be worse than 2008-2009. Once more, this is only looking at the domestic economy. They live with blinders on and do not see the world around us with respect to the globalization policies that are all in chaos.

Even at Davos in 2003, Alejandro Toledo, then President of Peru, urged the participants to listen to the voices of those protesting outside and to build a bridge with the participants of the Porto Alegre anti-globalization conference. “We must give a human face to the global economy and globalization,” he said. “Managing the economy is not an end in itself, but a means to improve the quality of life. Globalization is meaningless if it does not contribute to reducing poverty all over the world. “ Schwab preaches equality but at the price of Authoritarianism and the loss of individual rights.

The Fed is not between a rock and a hard place domestically. It just made it clear that it is not like the ECB and is not in the climate change business. The Fed is INDEPENDENT and will not be bullied by Biden. The Fed understands that it has become the world’s central bank and its actions in raising rates have had a far greater impact externally particularly in emerging markets because so many other nations issue their debt in US dollars.

The focus is not entirely on the nonsense of the domestic number of the money supply. If a foreigner buys property in the United States, they convert their currency to dollars, and in effect that increases the domestic money supply for that capital now free up cash domestically. The Fed has no control over that aspect and central banks have become aware of this effect which is not taught in economics class and not factored into the doomsday forecasts all based on the same reasoning forever.

All the analysis is constantly based on the Quantity Theory of Money which no longer works in our global economy. That was the foundation of the money theory that emerged with Sir Tomas Greshan who was the agent for the British crown. He saw that when Henry VIII debased the coinage, the value declined in Amsterdam when the exchange rate was solely based upon the metal content of the currency.

All we have ever heard is that the Fed has the power to create money out of thin air. They never explain why the Fed was given that power. You cannot have a fixed money supply as the population increases, then you end up with DEFLATION which is the rise in the value of money. They are married to the argument and nothing you can do will deter them from that saying. During the Great Depression, people hoard their money and do not spend it. That was why the ECB went to negative to try to force people to spend money. You can DOUBLE the money supply but if the people hoard it, you will never create inflation.

Because people hoard their cash, there was a huge contraction in the velocity of money. This resulted in massive shortages and it led to over 200 cities issuing their own money to try to enable a local economy to still function for there was not enough cash to even pay anyone for services.

INFLATION is actually the decline in the purchasing power of the currency as measured against assets. DEFLATION is the rise in the value of money and the decline in the value of assets. The way the term “inflation” is handled today, the government puts the blame on the private sector. During DEFLATION we are blamed for not spending our money.

All this talk about bail-ins and bail-outs misses the point. They act as if they in the end really matter. HYPERINFLATION will never arrive based on increasing the money supply. It arrives with the collapse of CONFIDENCE in the government. Germany imposed a forced loan and confiscated 10% of everyone’s assets in December 1922. Germany lost the war and in 1918 there was a Communist Revolution that led to the creation of the Weimar Republic. The money supply increased 10 fold during 1922 when they were struggling to meet the reparation payments. That undermined the confidence in the government. But it was December 1922 when they confiscated  Note that the hyperinflation took off in 1923 after that forced loan. It was no longer safe to have assets in banks.

This idea that we are headed into so black hole all because the Fed creates money is insane. That misinformation that the German Hyperinflation was all because of printing money was totally absurd and a lie. Once the government stole 10% of everyone’s assets, that was the final straw. They then had to print just to try to cover costs and meet reparation payments.

The Lesson of Germany is seriously distorted and has inflected the view of money supply and inflation which ignores the actions of the government. That is the real issue.

The Central Bank Dilemma

Armstrong Economics Blog/Interest Rates Re-Posted Dec 14, 2022 by Martin Armstrongpread the love

The Central Bank Dilemma has become a major crisis in and of itself. I have been warning these past years that the ONLY tool a central bank has is manipulating the interest rates. Quantitative Easing was primarily to influence long-term rates indirectly since the Fed can only set short-term rates. During the past nine months, Fed Chairman Jerome Powell has raised interest rates at the fastest pace of any Federal Reserve chair since the 1980s. While some complain that this has triggered a stock market rout, and caused the housing market to come to a standstill, others argue that he has increased the fears of an imminent recession.

That was the domestic part. The Fed’s raising of interest rates has impacted the emerging markets including contributing to the chaos in the financial markets in China since many banks and provinces borrowed in dollars to save interest rates – or so they thought. It has forced the European Central Bank to raise interest rates and the net result was to unleash a crisis in long-term debt where life companies and pension funds cannot continue to buy the long-term with rates rising and bonds declining the day after you just bought a traunch.

Janet Yellen, who wants to hunt down everyone who sold a used bike on eBay for $600, understands the crisis we have erupting in debt because of rising interest rates and investors are afraid of the long end. Her proposal to buy in the long-term and swap it for the short-term recognizes the fact that we have a major debt crisis unfolding and she has come up with another scheme to keep kicking the can down the road.

Consequently, with inflation hitting 40-year highs, the warning signs are there that the central banks cannot do anything to address the economic crisis. Hence, initially, Fed officials were unanimous that rates needed to rise aggressively. Now, however, there are cracks in that view. These cracks will become fissures over how this type of inflation is NOT speculative but shortages set in motion by COVID and then accelerated by this drive for war with Russia and the insane sanctions they imposed on even private citizens.

While some expect inflation to cool steadily next year and want to stop raising rates soon, the problem is that inflation driven by shortages will not subside with a reduction in demand. Even real estate replacement costs have risen despite the fact that the market has started to pause. The cost to build a home in many areas is already higher than existing homes, which tends to create a floor before prices. Others worry inflation won’t ease enough next year in the face of a war that is escalating, and they defer to the old standard of raising interest rates to temper inflation.

That leaves Chairman Powell struggling in the eternal seas of politics lost in the middle as the arguments get louder on both sides. Powell will be challenged trying to chart a course through war, stagflations, and complete fiscal mismanagement by our politicians. The next stage of interest-rate policy presents very difficult questions concerning how high to raise rates from here, and how long to hold them at that level in this Pyhric War against Inflation.

$80 Trillion Derivatives Market

Armstrong Economics Blog/Banking Crisis Re-Posted Dec 6, 2022 by Martin Armstrong

The Bank of International Settlements (BIS) has warned in its latest quarterly report that there is $80 trillion dollar in off-balance sheet dollar debt in the form of FX swaps. This has involved pension funds and other ‘non-bank’ financial firms.

What they do not explain is that each “debt” has a counterparty that has an “asset” and in theory, that works out to net zero. But there is counter-party risk that is not discussed. This doesn’t address the liquidity issue either. Still, it is not entirely a black hole as they seem to lead some to proclaim. What is also left unexplained or addressed is the question of if they are netting across all transactions. Many of the players in this market have offsetting positions. It is one thing to scream OMG the size of the stock market is too big, and another to yell fire in a crowded theater.

This $80 trill is effectively the derivatives market. It is what it is. Marking everything to market all the time isn’t a great answer either for there can be imbalances for a day or two in the middle of chaos. What is clear is that the BIS is raising concerns, in which it also said this year’s market upheaval took place without any major issues.

On the other hand, the BIS has been pushing central banks to raise rates to fight inflation which will only accelerate the crisis since it is shortage based. This is no different from the ’70s when there was an external price shock from OPEC,. Raising interest rates did nothing to prevent inflation, instead, it resulted in a strong dollar, the collapse of the pound to $1.03 in 1985, and the US national debt more than doubled on interest expenditures.

Nonetheless, the BIS has been quieter on the inflation front this time around. Just maybe, they are starting to realize that the old theories no longer work. The September UK government bond market turmoil was created by raising interest rates and the losses on holding long-term debt in the face of rising interest rates have been just the tip of the iceberg.

The FX swap markets have become huge. Our clients are well into the trillions these days whereas twenty years ago we had less than 5 clients at the $1 trillion threshold.

Nonetheless, the complexity of the cross-positions is the real risk. One side can blow out because of the chaos these braindead politicians are creating with this war against Russia.