The Federal Reserve has run out of ammunition. For all the money that the Fed has thrown into our financial system, the economy actually shrunk in the fourth quarter of 2012. Unemployment is also ticking up again.
Contrary to popular belief, the Fed does not have absolute control over interest rates. It often acts in hindsight, adjusting its internal rates to market forces, and such has been the case during the long term bear market in interest rates. What the Fed does do, however, is dislocate free markets in order to provide private money-making opportunities to its members.
This is seen in recent years by the blow-up of the sub-prime mortgage industry and the multitrillion dollar bailout of large financial institutions. If the Fed had been absent during this period, these things never would have happened.
The Fed’s actual agenda has been to protect its primary constituents – the large U.S. and global banks. It’s feigned attention to the American economy, workers and citizens is a phony as a three-dollar bill. The largest U.S. banks, all of which hold shares in the Fed include,
- JP Morgan Chase
- Bank of America
- Wells Fargo
- Goldman Sachs
- Morgan Stanley
How do you suppose they got to be the largest banks in the country? By free-market competition? Hardly.
John D. Rockefeller, the early patriarch of the Rockefeller fortune and founder of Standard Oil, was an unabashed monopolist who famously stated, “Competition is a sin.”
The Rockefeller family has controlled the Chase-related line of banking since the 1920′s. When Chase Bank merged with Equitable Trust (John D. Rockefeller, Jr. was the largest shareholder) in 1930, it became the largest bank in the world. It is STILL the largest bank in the U.S. and the ninth largest in the world!
The essence of monopoly capitalism is to always game the system in their favor while discriminating against competitors. These banks, and especially JPMorganChase have turned government manipulation into an art form. Communist/Marxist Lenin was the first person to define “state monopoly capitalism” as the successor to simple monopoly capitalism. According to Marxist theory, state monopoly capitalism is the final historical stage of capitalism.
Perhaps this is why the global banks and corporations are pushing so hard for a new economic model that they themselves call a “green economy.” Under the cover of green lies Technocracy, which I have written about for several years now.
Interest Rates Headed Up
The long-term bull market in 30 year Treasuries is over. As bond prices have recently moved lower, we can also say that the bear market in interest rates is over as well – it’s the flip side of the same coin.
The July 2012 low of 2.44 percent should stand as the bottom of this entire trend, with rates soon moving above 4 percent. Over the next five years, rates should move back up into the 6 – 8 percent range.
Someone might say, “Who cares?” Well, elite bankers do not make a market, they only manipulate, exacerbate, exaggerate and dislocate already existing markets. The Fed’s response to rising rates, and the resulting economic/financial effect will be played by the elite banks to further consolidate their monopolistic position and maximize their profits. Most of those profits will be at the expense of the middle class and the American taxpayer.
When the Fed shuts off the monetary spigot, and it is a certainty that they will at some time in the next 12 – 18 months, the economic impact will be immediately felt. The dollar will rise in value in relation to other currencies in the world, deflation will increase its grip, government spending will be curtailed, interest rates will rise dramatically, and stocks will fall.
If you were part of this elite, and knew these things were going to happen and when the trigger would be pulled, do you think you could make some money off the news? Of course you could. Buy dollars, short stocks and futures, sell long-term bonds, sell real estate, etc. I should mention that this is exactly what so-called “smart money” is doing right now – accumulating dollars, dumping stocks, bonds and real estate.
Considering the chart above, think about the financial damage that was done to America during a period of falling interest rates. There was the dot com bubble and the first leg of the great bear market starting in 2000. There was the sub-prime meltdown and real estate crash of 2006 onward. The stock market crashed again in 2007 – 2009. Business and personal bankruptcies soared. Unemployment soared. [Note: during the first four years of Obama, some 8.5 million workers have dropped out of the labor force and are not counted in current unemployment statistics.] The national debt, trade deficit and budget deficit are at record levels.
All of this happened with falling interest rates. What do you think will happen when interest rates turn up? Will it bring prosperity or poverty? I am sad to say, poverty.
As small investors are finally coming back into the stock market, they are investing at a time when institutional investors are dumping their stocks. They are buying bonds just when smart money is selling. (see Insiders Bailing on Dow 14000) They are buying homes again with cheap money, often betting on variable rate mortgages because they think interest rates will continue to fall. In short, the middle class public is 180 degrees out of step.
Retirement accounts and trust funds that are heavily committed to long-term bonds will be hammered as the principal value of their investments crash. A $1,000 30-year bond yielding 3 percent today will be worth only $500 when yields go up to 6 percent. In other words, a doubling of the rate cuts your portfolio in half.
Home owners with variable rate mortgages will be “reset” at higher rates, driving their mortgage payments up. Interest only on a $200,000 mortgage at 4 percent is $8,000 per year. At 6 percent, it jumps to $12,000, and at 7 percent, it hits $14,000. The result will be the same as it was in 2007 – mass foreclosures and further real estate deterioration.
It is not a bright picture. Facing the reality of it is worth the time and effort, because you might avoid some very painful mistakes, and perhaps even profit from it.
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — –
Note: Additional content on this page is available only to Premium subscribers of Findings & Forecasts.
To subscribe, please click here.