Does Fed really want to crash the stock market?
Besides the impact a stock market crash would have on pension accounts (such as are held in trust for retirees from unions and government institutions), tens of millions of Americans are counting on Individual Retirement Investment Accounts, whether they are qualified or unqualified by IRS standards. These investments are generally stocks, mutual funds, and real estate investment trusts.
The Fed keeps jawboning about raising interest rates, and already has done so four times. So far in 2022, the four interest increases yield a total of 2.25%, the biggest, 0.75%, coming in July. The threat of further interest rates has already brought the short-sellers out in profusion, driving currency-rate-sensitive metals such as silver and gold, to or near multi-year lows.
The price of silver, more sensitive than gold to relative currency valuations, today (Sept. 1, 2022) reached the lowest price (December 2022 contract at $17.40/tr.oz) since early May 2020 when prices were recovering from the Covid lock-down selloff of March 2020 that drove crude oil prices in April down to negative prices (oil consumers briefly being paid to take possession of oil, move it, and put it in storage).
Today, as a consequence, at least in part, of this jawboning effort, the Japanese yen reached the lowest value since the Japanese economy crashed in the late 1990s—today requiring more than 140 yen to buy one US dollar and less than one US dollar to buy a Euro in the Forex market.
Despite the Fed’s constant jawboning, encouraging lower prices in stocks and commodities, there are a number of reasons why this is largely bluster—and will eventually have the opposite result of causing a panicky short cover, soaring prices in investment metals (primarily silver, but also gold) when the Fed can’t turn bluster into reality.
First after the threat to retirement accounts and other related investments (e.g. value of rental properties held as investments), as the dollar appreciates against foreign currencies such as the Euro and Yen, American products (agricultural and industrial) lose out to foreign competition. So unless there is a commensurate decline in US purchases from foreign sources, the trade balance crashes deeper into negative numbers, bringing in negative feedback. We are at this point right now.
This negative feedback takes over and multiplies any effort by the Fed to raise interest rates (that would make the dollar appreciate). Attempting to force interest rates higher at this point only depreciates the value of bonds, making US treasuries even less attractive to both foreign and domestic accounts. As US sovereign debt doesn’t find buyers, the crash in bond values would be calamitous, threatening a precipitous spike in interest rates such as was seen in the late 1970s through 1981. Then the rise in interest rates is market driven and beyond Fed control. Here the Fed has become the Sorcerer’s Fantasia-mouse-apprentice—having unleashed a firestorm of crashing bond values.
Paying the soaring interest rates on the trillions of outstanding national debt held by banks and individuals would rapidly consume the nation’s GDP, so a default (formal refusal to pay) on US sovereign debt becomes extremely likely—or to employ the other alternative of massive inflation to pay the interest and redemption in essentially worthless, depreciating currency. This is reminiscent of the dilemma faced by the Wiemar Reichsbank in the early 1920s, but without a sympathetic Uncle Sam to deliver a Dawes-gold-loan bailout for a collapsed currency.
I strongly believe that a stronger dollar is what the Fed cannot afford as that is the trigger for extreme trade balance negativity. So the bluster about interest rates can’t be backed up by action. The Fed is essentially locked into accepting a high rate of inflation—or into triggering a collapse, not only in the stock market (and very temporarily in investment metals), but also, ultimately, in destroying US sovereign debt credibility, and that is definitely something the Fed cannot at all costs countenance.
https://advisor.visualcapitalist.com/...
The Fed keeps jawboning about raising interest rates, and already has done so four times. So far in 2022, the four interest increases yield a total of 2.25%, the biggest, 0.75%, coming in July. The threat of further interest rates has already brought the short-sellers out in profusion, driving currency-rate-sensitive metals such as silver and gold, to or near multi-year lows.
The price of silver, more sensitive than gold to relative currency valuations, today (Sept. 1, 2022) reached the lowest price (December 2022 contract at $17.40/tr.oz) since early May 2020 when prices were recovering from the Covid lock-down selloff of March 2020 that drove crude oil prices in April down to negative prices (oil consumers briefly being paid to take possession of oil, move it, and put it in storage).
Today, as a consequence, at least in part, of this jawboning effort, the Japanese yen reached the lowest value since the Japanese economy crashed in the late 1990s—today requiring more than 140 yen to buy one US dollar and less than one US dollar to buy a Euro in the Forex market.
Despite the Fed’s constant jawboning, encouraging lower prices in stocks and commodities, there are a number of reasons why this is largely bluster—and will eventually have the opposite result of causing a panicky short cover, soaring prices in investment metals (primarily silver, but also gold) when the Fed can’t turn bluster into reality.
First after the threat to retirement accounts and other related investments (e.g. value of rental properties held as investments), as the dollar appreciates against foreign currencies such as the Euro and Yen, American products (agricultural and industrial) lose out to foreign competition. So unless there is a commensurate decline in US purchases from foreign sources, the trade balance crashes deeper into negative numbers, bringing in negative feedback. We are at this point right now.
This negative feedback takes over and multiplies any effort by the Fed to raise interest rates (that would make the dollar appreciate). Attempting to force interest rates higher at this point only depreciates the value of bonds, making US treasuries even less attractive to both foreign and domestic accounts. As US sovereign debt doesn’t find buyers, the crash in bond values would be calamitous, threatening a precipitous spike in interest rates such as was seen in the late 1970s through 1981. Then the rise in interest rates is market driven and beyond Fed control. Here the Fed has become the Sorcerer’s Fantasia-mouse-apprentice—having unleashed a firestorm of crashing bond values.
Paying the soaring interest rates on the trillions of outstanding national debt held by banks and individuals would rapidly consume the nation’s GDP, so a default (formal refusal to pay) on US sovereign debt becomes extremely likely—or to employ the other alternative of massive inflation to pay the interest and redemption in essentially worthless, depreciating currency. This is reminiscent of the dilemma faced by the Wiemar Reichsbank in the early 1920s, but without a sympathetic Uncle Sam to deliver a Dawes-gold-loan bailout for a collapsed currency.
I strongly believe that a stronger dollar is what the Fed cannot afford as that is the trigger for extreme trade balance negativity. So the bluster about interest rates can’t be backed up by action. The Fed is essentially locked into accepting a high rate of inflation—or into triggering a collapse, not only in the stock market (and very temporarily in investment metals), but also, ultimately, in destroying US sovereign debt credibility, and that is definitely something the Fed cannot at all costs countenance.
https://advisor.visualcapitalist.com/...
It only does so to increase unearned, undeserved profits for the banking cartel.
Increasing the reserves requirement can limit credit creation just as well as raising rates
without the unpleasant side effects of crushing the economy caused by raising rates.
The fed raises rates to allow banks to steal from everyone else.