Posted on 03/15/2017 2:57:09 PM PDT by HomerBohn
Most Americans do not understand this, but the truth is that the Federal Reserve has far more power over the U.S. economy than anyone else does, and that includes Donald Trump. Politicians tend to get the credit or the blame for how the economy is performing, but in reality it is an unelected, unaccountable panel of central bankers that is running the show, and until something is done about the Fed our long-term economic problems will never be fixed. For an extended analysis of this point, please see this article. In this piece, I am going to explain why the Federal Reserve is currently setting the stage for a recession, a new housing crisis and a stock market crash, and if those things happen unfortunately it will be Donald Trump that will primarily get the blame.
On Wednesday, the Federal Reserve is expected to hike interest rates, and there is even the possibility that they will call for an acceleration of future rate hikes:
Economists generally believe the central bank’s median estimate will continue to call for three quarter-point rate increases both this year and in 2018. But there’s some risk that gets pushed to four as inflation nears the Fed’s annual 2% target and business confidence keeps juicing markets in anticipation of President Trump’s plan to cut taxes and regulations.
During the Obama years, the Federal Reserve pushed interest rates all the way to the floor, and this artificially boosted the economy. In a recent article, Gail Tverberg explained how this works:
With falling interest rates, monthly payments can be lower, even if prices of homes and cars rise. Thus, more people can afford homes and cars, and factories are less expensive to build. The whole economy is boosted by increased “demand” (really increased affordability) for high-priced goods, thanks to the lower monthly payments.
Asset prices, such as home prices and farm prices, can rise because the reduced interest rate for debt makes them more affordable to more buyers. Assets that people already own tend to inflate, making them feel richer. In fact, owners of assets such as homes can borrow part of the increased equity, giving them more spendable income for other things. This is part of what happened leading up to the financial crash of 2008.
But the opposite is also true.
When interest rates rise, borrowing money becomes more expensive and economic activity slows down.
For the Federal Reserve to raise interest rates right now is absolutely insane. According to the Federal Reserve Bank of Atlanta’s most recent projection, GDP growth for the first quarter of 2017 is supposed to be an anemic 1.2 percent. Personally, it wouldn’t surprise me at all if we actually ended up with a negative number for the first quarter.
As Donald Trump has explained in detail, the U.S. economy is a complete mess right now, and we are teetering on the brink of a new recession.
So why in the world would the Fed raise rates unless they wanted to hurt Donald Trump?
Raising rates also threatens to bring on a new housing crisis. Interest rates were raised prior to the subprime mortgage meltdown in 2007 and 2008, and now we could see history repeat itself. When rates go higher, it becomes significantly more difficult for families to afford mortgage payments:
The rate on a 30-year fixed mortgage reached its all-time low in November 2012, at just 3.31%. As of this week, it was 4.21%, and by the end of 2018, it could go as high as 5.5%, forecasts Matthew Pointon, a property economist for Capital Economics.
He points out that for a homeowner with a $250,000 mortgage fixed at 3.8%, annual payments are $14,000. If that homeowner moved to a similarly-priced home but had a 5.5% rate, their annual payments would rise by $3,000 a year, to $17,000.
Of course stock investors do not like rising rates at all either. Stocks tend to rise in low rate environments such as we have had for the past several years, and they tend to fall in high rate environments.
And according to CNBC, a “coming stock market correction” could be just around the corner:
Investors are in for a rude awakening about a coming stock market correction — most just don’t know it yet. No one knows when the crash will come or what will cause it — and no one can. But what’s worse for most investors is they have no clue how much they stand to lose when it inevitably happens.
“If you look at the market historically, we have had, on average, a crash about every eight to 10 years, and essentially the average loss is about 42 percent,” said Kendrick Wakeman, CEO of financial technology and investment analytics firm FinMason.
If stocks start to fall, how low could they ultimately go?
One technical analyst that has a stunning record of predicting short-term stock market declines in recent years is saying that the Dow could potentially drop “by more than 6,000 points to 14,800″:
But if the technical stars collide, as one chartist predicts, the blue-chip gauge could soon plunge by more than 6,000 points to 14,800. That’s nearly 30% lower, based on Friday’s close.
Sandy Jadeja, chief market strategist at Master Trading Strategies, claims several predicted stock market crashes to his name — all of them called days, or even weeks, in advance. (He told CNBC viewers, for example, that the August 2015 “Flash Crash” was coming 18 days before it hit.) He’s also made prescient calls on gold and crude oil.
And he’s extremely concerned about what this year could bring for investors. “The timeline is rapidly approaching” for the next potential Dow meltdown, said Jadeja, who shares his techniques via workshops and seminars.
Most big stock market crashes tend to happen in the fall, and that is what I portray in my novel, but the truth is that they can literally happen at any time. If you have not seen my recent rant about how ridiculously overvalued stocks are at this moment in history, you can find it right here. Whether you want to call it a “crash”, a “correction”, or something else, the truth is that a major downturn is coming for stocks and the only question is when it will strike.
And when things start to get bad, most of the blame will be dumped on Trump, but it won’t primarily be his fault.
It was the Federal Reserve that created this massive financial bubble, and they will also be responsible for popping it. Hopefully we can get the American people to understand how these things really work so that accountability for what is coming can be placed where it belongs.
What carbon tax?
PRED!
Yeah, I don’t know. They managed to keep the makeup from smearing on this pig so far. Don’t know how they do it, but they seem to be winning.
Still, I know the day I put money in this market, it will crash, with my luck.
The Fed’s logic is illogical. It ignores the macro-economic factors of both inflation and GDP growth MORE than it acts on the phony “unemployment” figure, which we KNOW, with today’s low labor participation rate is more phony than a two dollar bill.
Some economists may say it is merely an “academic” error of the economic analysis staffs and leaders at the Fed, who are overwhelmingly eggheads from egghead city and not folks with “out in the economy” business or financial experience.
Others, like this article, may think the folks at the Fed are smarter than many know them to not be, and are just going to error on purpose, because of who is in the White House right now.
Having read more than one book lately on just how dumb so many at the top of the chain at the Fed are, I am on the fence as to their greatest problem - they are just too political, or they got where they are through the Peter Principle (rose to their level of incompetence).
For the powers the Fed has, they have it made even above politicians. They can make the most egregious mistakes, gravely harming the country, get away with it and suffer even less consequences than some politician who, because of their record, lose office and can’t get elected again.
I have learned enough since 2008 to understand that the Fed could have prevented the crisis, and instead chose to join the chorus of cheerleaders for the “new economy”, “affordable housing”, massively rising debt, and uncharted financial transactions (”derivatives and CDOs) amounting to more than the economies of the world), while they kept saying conditions were manageable, even when the first canaries in the coal mine had begun to sing.
All the top Fed officials should have been fired in 2008, not out of any partisan interest, but of the national interest. If they weren’t so stupid, they would have listened and respected a few dissident voices within, they would have been shouting with all their institutional strength at the rest of the federal government and taken their own fuel (low interest rates) off the housing bubble fire. By the time they did the bubble was already bursting, with its virus of subprime debt within.
I should have said energy taxes but the carbon tax nonsense is what the left continues to push now and has passed in some states. In the leftists hands, they both try to achieve the same results in trying to push us out of cheaper and more available energy and towards more expensive energy.
They try to use tyranny or the power of government to try to force us out of what is cheaper and more available energy, thus putting the squeeze on every American household with higher energy prices when in reality, it does not have to be.
CGato
bkmk
Small problem with that thesis. The market reacted very positively to a slight rate increase. Many people here are just insistent that debt is this massive issue, and that to prevent inflation, we need to have fewer dollars. Well, they got it.
Personally, I don’t think debt is at all reflective of the state of the US economy, which hasn’t been properly valued in 25 years to account for the vast, overwhelming increase in productivity from computers. In other words, we could print money from now til doomsday and probably not make up ground on the real valuations of US assets.
Indeed, quite the contrary, the Dow went up 112 today on news of an increase.
Wish they would have given the amount of the derivatives.
Oops saw the number.
The global elites may not be as bulletproof as they think they are.
The Atlanta Fed just cut its Q1 GDP forecast from 1.2% to 0.9%, a number which if confirmed would be the lowest quarterly print in year, just two hours before the Fed’s rate hike quite humorous. As a reminder, the number was as high as 3.4% one and a half months ago. Retail sales are also falling off the table. Despite these facts they continue to raise rates. The stock market is feeding of the FED “confidence” in the economy.
The libs will declare a recession next year prior to the election.
“...$20 Trillion National Debt.”
I read total tax receipts under Obama in eight years was roughly $20 TRILLION!!! This country blew TRILLIONS on NOTHING but slave debt upon our children. How the hell can anyone blow so much money!!!??? This government is degenerate!
Trump needs to replace Yellen with someone he can trust.
I just read an article on the debt ceiling. I’m now pretty convinced the Deep State and the New World Order globalists are going to attempt to crash the economy. When there’s a crisis, there is panic and fear. When there is panic and fear, people will reach out to anyone for a solution. They will surrender their freedom, their rights, and their very being for “security.” This is when the globalists will make their move.
It was intentional. Obama was following the Clowerd-Piven plan for economic destruction to bring about radical change.
Every cent spent and borrowed during Obama’s Reign of Terror was intentional.
Why do you think the Obama Congress never passed a single budged? Without a budget, you can spend as much as you want every year. There is no limit without a budget. And Obama never proposed a budget in 8 years nor did the Commie Rats ever pass one.
They were pulling for the destruction of the American economy.
All of their treason is intentional, and intent on destroying us as a nation, a culture, an economy.
The scenario for our future.
America is so riddled with enemies; some are RepublicRATs like the senile McCain and his toady Graham. McCain works feverishly to discredit our nation and our new president who is doing what he promised, but that doesn’t fit in with these weasels and their thirst for a new world order.
America desperately needs more Conservatives of the right wing variety in Congress. We finally have a president who understands the seriousness of our problems. We are being strangled to death by a burdensome, evil bureaucracy that has swelled out of control.
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