Federal Reserve
Confesses Sole Responsibility For All Recessions
In
a surprisingly candid admission, two former Federal Reserve chairs have stated
that the Federal Reserve alone is responsible for creating all recessions in
the United States.
First, former Fed Chair Ben Bernanke said that
To
clarify this statement, former Chair Janet Yellen placed the murder weapon in
the Fed’s hands:
Two things usually end them…. One is
financial imbalances, and
the other is the Fed.
Think
that through, and you quickly realize that both of those things are the Fed. Is
there anyone left standing who would not say the Fed’s quantitative easing in
the past decade was the biggest cause of financial imbalances all over the
world in history? Moreover, whose profligate monetary policies led to the Great
Financial Crisis that gave us the Great Recession?
So, the Fed loads the gun with financial causes and then pulls
the trigger. In fact, I think it would be hard to find a major financial
imbalance in the US that the Fed did not have a hand in creating or, at least,
enabling. Therefore, if those are the only two causes, then it is always the
Federal Reserve that causes recessions by its own admission.
And, yet, those Fed dons look so pleased with themselves.
Yellen went on to say that when the Fed is the culprit, it is
generally because the central bank is forced to tighten policy to curtail
inflation and ends up overplaying its hand. (She didn’t
mention that the Fed’s monetary policy may have a hand in creating financial
imbalances.)
Exactly,
nor did she mention that the inflation they were “forced” to curtail always
happens because of financial imbalances the Fed created or enabled. That is why
I call our expansion-recession cycles, rinse-and-repeat cycles. Therefore, the
Fed is only forced by its own ill-conceived actions. First you have to create
the imbalance, which causes the economy and stocks to inflate, then you have to
pull the trigger to shoot that down by tightening into a recession, which the
Fed always does:
Bernanke elaborated on Yellen’s point,
accusing the central bank of, in essence, murder. It takes an aggressive act on the
part of the monetary authority to bring an expanding economy to a halt and
cause it to shift into reverse.
Yellen
and Bernanke were speaking at the annual meeting of the American Economic
Association in Atlanta earlier this month in the company of current Fed Chair
Jerome Powell.
As I demonstrated in my two earlier articles this week (“Does
Inverted Yield Curve Indicate Recession?” and “What is an
inverted yield curve and what does it mean?“), the Fed carries out
this act of econocide by getting the yield curve to invert via its forced
interest changes. As shown in those articles, every recession has been
immediately preceded by a Fed-created inversion of the yield curve — the Fed’s
smoking gun.
The Fed Fix Is Almost In
As noted in those articles, today’s yield curve has already
slipped into its penultimate inversion. First (on December third),
three-year notes started
paying more interest than five-year notes. (The five-year was at 2.83%
interest, while the three-year hit just over that at 2.84%.) In essence,
investors were betting the economy would be a tad better in five years than it
would in three.
Within a matter of weeks, the three-year notes were paying more
than seven-year notes. Then, just about Christmastime, they started paying more
than eight-year notes, inverting the yield curve even further out. The orange
recession indicator light comes on when they take the next step of paying more
than ten-year notes; and above that we go full recessionary red! The first
three came all within in a month, so the rest may come just as quickly.
In fact, we’re so close that one more rate increase by the Fed
could pull the trigger. This is why Powell can be so reassuring about pulling
back soon on targeted interest-rate increases. He knows he’s already operating
with a hair trigger because of the Fed’s other tightening action in rolling
bonds off of its balance sheet.
Like a skilled sharp-shooter, Powell recently said the Fed is “watching
and waiting” before it pulls the trigger with its next rate increase. At
the same time, he suggested his balance-sheet reduction won’t end for awhile (and,
of course, the Fed knows that its balance sheet reduction is skewing the yield
curve faster than the Fed’s targeted interest-rate increases.
I’ve said before that those interest-rate increases are now just
playing verbal catch-up to what the balance sheet reduction is doing in the
open market. In other words, the balance sheet reduction is pulling the Fed’s
targeted interest rates up, regardless of what is says, so it is pressed to
state it intends an increase just to keep up with the effects of balance-sheet
reduction. Last summer the Fed tactic admitted this when…
The Fed raised the target range for its
benchmark rate by a quarter point to 1.75 percent to 2 percent, but only increased the rate it pays
banks on cash held with it overnight to 1.95 percent. The step
was designed to keep the federal funds rate from rising above the target range.
Previously, the Fed set the rate of interest on reserves at the top of the
target range. -Bloomberg
In
other words, the Fed had to change the way it calibrates some interest rates
because other factors than their change in their stated target rate were
driving rates up. In order to keep bank demand for Fed funds from pushing the
rate above 2%, the Fed set its stated rate at 1.95% to create some headroom.
That’s explained as…
Officials have said that, as they
drain cash from the system by shrinking the balance sheet, a rise in the
federal funds rate within their target range would be an important sign that
liquidity is becoming scarce…. The increase appears to be mainly driven by
another factor: the U.S. Treasury ramped up issuance of short-term U.S.
government bills, which drove up yields on those and other competing assets,
including in the overnight market.
And
that is what is now happening, but they are still planning to keep tightening
by reducing their balance sheet. What is not said there is that the major reason the US
Treasury is ramping up its issuance of government bills is that the Fed’s
unwind is forcing them to refinance maturing bills on the open market as the
Fed now refuses to refi those bills. I’ve maintained for a couple of years that
the unwind will drive up other interest rates, causing problems throughout the
economy.
Gunsmoke And Mirrors
So, the Fed’s recent talk about reducing the number of rate
increases in the Fed’s interest target is slight of hand because the Fed’s
unwind is doing the heavy lifting here, driving up rates faster than the Fed
changes its stated target rate. Powell assures everyone the Fed will slow down
its interest-rate increases, even as the Fed pushes right ahead with its balance-sheet
unwind, which is doing the most to invert the yield curve.
Powells only defense against concerns expressed about
balance-sheet reduction was…
“We are looking carefully at that, and the
truth is, we don’t know with any precision,” Fed Chairman Jerome Powell told
reporters on Wednesday when asked about the increase. “Really, no one does. You
can’t run experiments with one effect and not the other.”
Not
too reassuring to hear the Fed Head say no one really has any idea what impact
its balance-sheet unwind will have on other interest rates. Does the Fed not
know, or does the Fed just not want to say what it does know?
For additional cover as to whether the yield-curve inversions
the Fed creates will cause a recession this time as they did in all previous times,
Yellen, protested, as I noted in an earlier
article this week, that this
time is different:
Now there is a strong correlation
historically between yield curve inversions and recessions, but let me emphasize that correlation is
not causation, and I think that there are good reasons to
think that the relationship between the slope of the yield curve and the
business cycle may have
changed.
It’s
not every day that the Fed admits total culpability for the death of every
expansionary period. Nor that it admits that the inflation its expansionist
monetary policies create force it to become the culprit. Nor that it routinely
overplays its hand.
Apparently, the Fed Heads are so comfortable with all of this
(hence the smarmy looks in their photos above) that the economic murderers can
confess in broad daylight every murder they are responsible for with complete
impunity, even as they tell you where the bodies are buried. However, because
they still have their next economic massacre to commit right before your eyes
and don’t want you to stop them, they wish to assure you that “we can’t
possibly know what will happen” now or “this time is different. Things have
changed.”
The words “I can’t know what will happen” when a gunslinger is
twirling his cocked and loaded pistol with his finger on the trigger, should
not give you comfort.
Perhaps all these confession now will enable them to smile even
bigger when the slaughter is over, and they know they did it this time in broad
daylight.
Of course, there is one major difference this time. In all
previous times, the Fed didn’t have the most massive balance-sheet unwind
pushing interest rates all around so it had to rely more on its conventional
tool of incremental changes in the its targeted interest rate. The new
existence of that big gun mean it can who you it is putting away the little gun
to disarm you because it has a cannon pointing at you from just inside the
woods to your left. Thus, Powell said disarmingly,
More rate hikes wasn’t a pre-set plan and the
forecast of two moves was conditional on a “very strong outlook for 2019.”
- MarketWatch
In
other words, keep your eye on the rate hikes I keep talking about (the little
gun), not on the big balance sheet reductions that we put on autopilot so we
don’t have to talk about them. Like a great hunter, Powell said the Fed can be
patient.
Some analysts believe the Fed’s runoff of its
balance sheet is hurting financial markets and want the central bank to end the
program.
Gee,
ya think? A runoff that intends to force the US government to refinance an
additional $2 trillion over the next 3-4 years on the open market might be
hurting financial markets more than a quarter-point increase in the Fed’s
interest target every few months?
One analyst who disagrees with Powell is Peter Boockvar, chief
investment officer at Bleakley Advisory Group:
“It’s no coincidence that accidents begin to
pick-up the deeper you get into tightening … QE inflated markets to
very high valuations. It’s wishful thinking to believe QT isn’t going to have
an impact.”
Some
of the Fed’s colleagues at other central banks also agree and express concern
about what this will do to them:
Last month, Irjit Patel, the governor of the
Reserve Bank of India, pleaded with the Fed to slow plans to shrink its balance
sheet. If the Fed doesn’t shift course, “a crisis in the rest of the dollar
bond markets is inevitable,”
he wrote in an op-ed in the Financial
Times.
Other
Fed members are just as aware of the Fed’s institutional murder rates as
Bernanke and Yellen. St. Louis Fed President James Bullard told the Wall
Street Journal this month that a
recessionary risk is being telegraphed by what is now happening in the yield
curve and
that the Fed is causing the flattening of the curve toward inversion. So,
these guys all appear to be well aware of what they are doing.
However, to maintain the distraction, Bullard also said,
In separate remarks to reporters …. he was
open to a revisiting the balance sheet runoff but doesn’t think it is damaging markets as some argue.
Bullard [said] that if
the balance sheet runoff was impacting bond market as some suggest, then yields
would be moving higher instead of the steady decline seen
since November.
The
latter would be happening, except that money has been pouring rapidly out of
stocks and into bonds due to the rate increases the unwind created in September
and October. What he ignores is the fact that rate increases were so
substantial they sucked massive amounts of money out of the stock market in a
flood of capital flight because all of a sudden treasury interest looked quite
enticing. That, of course, pushed those rates down some in November.
So, “Nothing to see there, folks. Keep your eye on the little
gun; and, oh, did we tell you that we have murdered every economic expansion in
history?”
Who’s your daddy?
Now that we’ve heard the confessions from the murderers and have
experienced the diversions that will allow the next murder to happen as much in
plain sight as the confessions just happened, let’s look at the case from
another angle: What has been keeping the stock market alive and hopping over
the past decade?
Let me lay out evidence that it is clearly the Fed.
Exhibit A: What turned around the market’s major crash in 2009? The Fed’s
QE1. Does anyone think the market would have turned around without that massive
intervention? Was that intervention with hundreds of billions of dollars mere
window-dressing, or was it the greatest financial intervention to a financial
crisis the world had ever seen?
Exhibit B: What turned the market around
the next time it “corrected” as soon as QE1 ended? Was it not instant QE2? More
hundreds of billions of dollars?
Exhibit C: What saved the market when
Republicans played roulette with the nation’s credit rating in the summer of
2011 and shot themselves in the foot politically when Standard & Poor’s
gave the nation its first credit downgrade before Republicans even had the
chance to let the nation default? Was it not the immediate promise of an ever
bigger, indefinitely ongoing new kind of QE called Operation Twist, which
morphed into QE3?
Exhibit D: Then, when markets tumbled in
2015 and 2016, because the Fed was backing off from monetary stimulus, their
colleagues in other countries jumped in with their own QE. More than $5
trillion worth in 2016! All told, the world’s central banks have pumped in $15
trillion since then.
But
now they are all stopping!
Exhibit E: The prosecution presents a full picture of all central-bank
stock salvation:
The Fed may claim that it does not attempt to rescue markets and
that it looks only at economic indicators, yet somehow every time the market took a major
plunge in the graph above, the Fed was instantly on the scene with a new
invention of monetary stimulus in massive doses. Of course, “correlation is not
causation.” Correlation is pretty interesting, though, especially when it
happens at every plunge, except the
one at the top that is plunging much further than any other time on this graph
… because one thing IS different: No one is stepping in with salvation this
time.
If the Fed has been the salvation of the market again and again,
lifting it higher and higher, what happens if the Fed and other CBs let the
stock market drop? Do you think they won’t do that? The highest authorities in
the Fed just told you they did it every other time. First, they create massive
“financial instability,” as Yellen said, otherwise known as “bubbles,” which
grow due to the Fed’s infinite capacity to create monetary stimulus. They let
these grow until inflation finally “forces” them to tighten until they crash
them.
The prosecution presents Exhibit F:
This one is the Fed and all its major partners in crime. When
did stock markets start to plunge all over the world? Wasn’t it as soon as
global QT started to reverse at the end of that graph in 2018? Ah, but
“correlation is not causation.” Except that it kind of is when you keep finding
correlation everywhere you turn.
If the defense wants to argue the US market is not utterly
dependent on the Fed’s constant protection, let me ask, “What did the market do
in September of 2018 when the Fed removed one little word from its
market-soothing speeches? Accommodative. Just
as it watched its balance sheet-reduction up to full rewind speed.” It took its
biggest plunge by far in the entire ten-year recovery period. As nearly
everyone was saying, nothing bad suddenly emerged in the economy. All that
changed was the Fed to merely implying it would be less accommodative to market
concerns as it moved to full unwind.
If you still think the Fed isn’t going to kill the economy this
time, I have one more question for you: When was the last time the Fed raised
rates in the middle of a major market “correction?” How about never. Yet, now
it is raising rates and reducing
money supply via balance-sheet reduction at the same time that it hints it is
removing accommodation.
But balance-sheet reduction doesn’t matter, right?
“We don’t believe that our issuance [new bond
to replace those rolling off the balance sheet] is an important part of the
story of the market turbulence that began in the fourth quarter of last year.
But, I’ll say again, if we reached a different conclusion, we wouldn’t hesitate
to make a change,” Powell said. “If we came to the view that the balance sheet
normalization plan — or any other aspect of normalization — was part of the
problem, we wouldn’t hesitate to make a change.” - MarketWatch
In
other words, “Don’t look at the big gun. Nothing to see there.” Said the people
who have just told you that none of their expansions ever ended until
they murdered it!
Does the Fed have motive?
Don’t ask me why the
Fed will kill its own recovery. It is enough that it admits it always does. So,
I’ll leave determining which of the many possible “why’s” up to you. Maybe the
Fed will cop an insanity plea and say that even it doesn’t know why it does the
things it does. Whatever their actual motive, this sure has the Fed’s
unswerving M.O. all over it. It has their fingerprints and their multiple
confessions of guilt.
Still, let me lay out a couple of motives that are popular among
those many people attribute to the Fed just to show there are plenty of
possible motives out there:
Maybe the Fed’s member banks, who own and run the Fed (as its
only shareholders and as governing board members who have huge influence over
who the additional government-appointed board members are), like to repossess things.
That would be a motive.
Or maybe they want to create a new cashless, digital, global monetary
system. That would be a motive.
Or maybe, if they can crash things as perennially as Japan has
done for score or more of years, they can get permission to start buying stocks
directly, and use their infinite money supply, as Japan, has done to take major ownership in all the stocks of the
nation.
Numerous conspiracy theories spend entire books making a strong
case for different motives. I won’t land on one, but will note that all that
matters is that there are plenty of motives to choose from.
Sure, Yellen protested that “correlation isn’t causation,” but,
on the other, she admitted causation by saying that, when the Fed is the culprit, it is
generally because the central bank is forced to tighten policy to curtail
inflation — inflation that only the Fed causes by creating trillions of dollars
monetary stimulus. There only struggle this time to stay within their M.O. is
that they have failed to create inflation in the general economy that they are
supposed to govern. Maybe that is why they have pushed the expansion into the
longest in history because they are obsessed with following their usual M.O.,
and inflation didn’t cooperate this time to “force” them to tighten into recession
(their cover story).
So, we have multiple confessions of murder by known Fed
ringleaders. We have numerous pieces of circumstantial evidence that support
their confessions. We have many possible motives. And, even the fact that the
Fed continued pushing expansion longer than it has with more and more rounds of
QE can be explained by its M.O. How many times has the Fed said they don’t
understand why they couldn’t get inflation to rise to their 2% target for
years. They could hardly claim inflation concerns when everyone knew CPI was
under the target they’ve always said they want. Now it’s there. So, everything
is in place.
I rest my case.
BOND PRIMER: Does Inverted Yield Curve Indicate
Recession?
This
brief post presents simple historic proof that inverted yield curves predict
recessions. I am posting it in anticipation of an article this week in which
the Federal Reserve surprisingly admits it is solely responsible for creating
recessions.
Does an inverted yield curves predict a recession?
An inverted yield curve has happened shortly
before every US recession because the Fed has always tightened up financial
conditions at the end of its recovery programs by raising interest rates until
the yield curve inverts. That would be an inversion of the yield curve ranging
from two-year notes paying a better bond yield than ten-year notes
to two-year notes paying more than 30-year bonds.
Here is one
of the Fed’s own graphs that proves inverted yield curves have preceded every
recession in, at least, the last forty-five years where the blue line
represents how much interest on 10-year notes was above (as it should be) or
below 2-year notes (inversion):
You can see
that, after every yield-curve inversion, recession (the gray zones) followed.
That is as much as to say the Federal Reserve, once it starts tightening
financial conditions to thwart the possibility of runaway inflation, always
keeps turning the screws down on interest rates until it manages to convince
investors in the so-called open marketplace that a recession is imminent. As
explained in my article on inverted yield curves (linked above), investors
demand higher interest in the short-term than they do further out where they
think the economy will be doing better if they think recession is imminent.
Federal Reserve Insanity or Deceit?
If you click
on the link in the caption to the graph, you’ll see that even the Federal
Reserve is aware of the fact that it tightens interest until it creates
recessions. Apparently it doesn’t care because it continues to do this every time. One almost has
to conclude that either 1) the Fed wants to create recessions or 2) the Fed is
insane because the common definition to insanity is to keep repeating the same
behavior and expect different results.
It is not as
if the Federal Reserve could not see a yield-curve inversion coming long in
advanced in 2018 (and every other time it has taken this path). After all,
their own graphs show a trajectory that was clearly headed toward an inverted
yield curve, which actually began to form in December, 2018:
Whether the
Fed is just pathetically ignorant of the things its own graphs and data
and its own writers tell
it (and tell us) or insane or just evil (i.e., wanting to intentionally crash
the economy while pretending it doesn’t), I’ll leave up to you; but apparently
Janet Yellen, former Fed Head, is going to cop a plea of innocence by reason of
insanity:
Now there is
a strong correlation historically between yield curve inversions and
recessions, but let me
emphasize that correlation is not causation, and I think that
there are good reasons to think that the relationship between the slope of the
yield curve and the business cycle may have changed.
Well, when
it correlates precisely every
single time, I think causation is obvious. If you sit on my chest
and I can’t breath, it’s always possible I cannot breath for some other reason,
such as I’m having a heart attack; but, if you sit on my chest over and over,
and every time I cannot breath, I’m going to conclude you are definitely the
cause of my suffocation. With such precise and constant correlation, odds of
anything else being the cause become infinitesimal.
Given that
Yellen looks at this Fed chart and still doesn’t believe the Fed is the cause
and evens says she believes “may have changed” this time, Yellen might as well
just say the Fed is going to continue doing exactly the same behavior it by
tightening until a recession but anticipates different results this time. That
fits most people’s common definition of insanity to a “T.” Nearly fifty years
of history in the graph above says, “Good luck with that!”
Fed creates inverted yield curve recessions
Recessions
average about 18 months in length, so investors who are anticipating a
recession in the next six months are not going to want to invest in treasury
securities that are shorter than two years because they don’t want to roll
their money over to a new investment in the middle of a recession when they are
fairly certain the Fed will be lowering interest.
It is about
betting what the Fed will be doing with interest rates in the future, so
determined is the entire bond market by Fed policy. Investors know that, if we
go into recession, the Fed will slacken interest rates. Thus the yield curve
inverts to where longer-term bonds pay more interest than shorter-term notes or bills.
Whenever the
Fed pushes investor concerns that far into fearing near-term investments more
than long-term investments, the economy always crashes into recession. That is
because, at that high level of concern, financial markets start to seize up.
And, as explained in my yield curve inversion
article,
finances start to stand on their head when short-term credit costs more than
long-term credit as the same risk level.
Think of it
this way, if investors in the safest of all investments, US treasuries, are
that concerned to where they need higher interest from the government to entice
them into safe government bonds, how much more so are banks and other
institutions and individuals who are making other kinds of much riskier loans?
Once risk
concern hits the treasury market that hard, it means everyone making loans
everywhere is concerned about where this means things are going so that the
whole financial realm looks skewed on the immediate event horizon.
Please let
me know in the comments if some aspects of this intentionally simplified
article could have been expressed more accurately, while remaining equally simple,
and I’ll make the adjustments.
See next
where the Fed openly admits that it has created every US recession in recent
history.
Government Shutdown Is
Proving Americans Are Not Prepared For A Recession
The
brutal reality is that most Americans are not prepared for the next economic
downturn or recession. The government shutdown is highlighting just how much
Americans rely on others as opposed to themselves, and how little they have
saved for an emergency.
According to the newest op-ed article by Market Watch, the
government shutdown is perfectly proving that Americans are not prepared for a
financial disaster of any kind, let alone an economic recession. Many have long
assumed that the government (which as we all know is almost $22
trillion in debt) will be using their money (stolen funds aka, taxation) to bail
out those who get themselves into trouble. But the shutdown is proving just how little the government actually doesand just
how financially illiterate many Americans have allowed themselves to become.
Almost
60% of Americans have less than $1000 in savings for a rainy day fund or an
immediate emergency. It’s been ten years since the Great Recession left many
Americans jobless with no money, and it appears most have learned
nothing. The government shutdown serves as a painful warning and preview for what will happen once unemployment rises from
50-year lows. Americans are far too dependent on others, including the
government, for their survival.
Within just a few weeks into the government
shutdown, people are struggling to cope. We hear stories about people turning
to food banks to feed their families. We hear stories about people who are in
dire straits because they can’t get loans. We hear stories about people who
can’t pay their mortgages. That’s not even one month into the shutdown. –Market
Watch
Most
Americans live paycheck to paycheck, including those who work for the
government. Many won’t live below their means in order to save and it
certainly seems that most citizens have picked up the government’s
spending habits. They have also stopped saving for themselves. According to a recent GoBankingRates survey, only 21% of
Americans have more than $10,000 in savings,with
nearly 60% having less than $1,000 in savings. Almost 32% of Americans have
nothing saved up at all.
And
something most don’t want to hear is that every economic cycle will end and hit
a low again despite the rosy attestations of those who wish to keep confidence
high. There is nothing in history that suggests that extremely low unemployment
can be maintained for an extended period of time. Indeed, it is precisely
at the end of an economic cycle that low unemployment rates tend to reverse
rather suddenly.
There
is one way to prepare for a recession and it’s to end dependence on debt and
save some money for an emergency. Without the shackles of credit card debt, student loan debt, and car payments, Americans
could not only save more, but their money would go much further as no one has
already claimed it in the form of debt repayment.
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