You have to start with the most fundamental concept here: central planning doesn’t work. That’s the first principle. Central planning of shoes doesn’t work. Central planning of wheat doesn’t work, and central planning of (fake) money doesn’t work.

Central banks in general—and the Fed in particular—are on a mission impossible. They don’t know what the interest rate should be. Nobody does. That’s an exclusive function of a voluntary market of savers and borrowers.

A politburo can’t centrally plan interest rates any more than they can potatoes. They’re inevitably going to fail and cause significant damage.

It’s also important to remember central banks have NOTHING to do with the free market. They’re actually the antithesis of the free market. In Karl Marx’s Communist Manifesto, central banking is the 5th plank.

The lying media portrays central bankers as selfless bureaucrats who are just trying to save the economy. It’s a load of BS. Central bankers are the enemy of the average person.

Now, back to the rate hiking charade.

The Fed had embarked on one of the steepest rate hike cycles in history in 2022. They did so because price increases were spiraling out of control after the Fed inflated the money supply by around 40%—a staggering amount—amid the Covid mass psychosis starting in 2020.

In other words, they were forced to embark on this steep rate hike cycle to combat the inflation that they caused in the first place.

At the time, I knew they would never be able to tame inflation because of the skyrocketing federal debt load. If the Fed was able to raise interest rates to the point where it would actually defeat inflation, the rising interest expense on this exploding pile of debt would have bankrupted the US government.

The federal debt’s interest cost is already higher than the defense budget. Soon, it could exceed Social Security and other entitlements and become the number one item in the federal budget.

For context, the last time inflation was raging, Fed Chair Paul Volcker needed to raise interest rates above 17%. However, that was in the early 1980s, when the US debt-to-GDP ratio was around 30%. Today, it’s north of 123% and rising rapidly.

Today’s higher debt load and accompanying interest expense are why the Volcker option is not on the table. There’s no way the Fed could raise rates any near 17%. They barely took rates above 5% this time before capitulating—not even 1/3 of what Volcker did.

In short…

1. The federal interest expense exceeded $1 trillion for the first time recently.
2. The federal interest expense has recently exceeded national defense spending for the first time and is poised to become the largest item in the budget.
3. The US government is now borrowing money to pay the interest on the money it has already borrowed.

Considering all of this, Fed Chair Powell’s recent announcement that the rate hike cycle is officially over shouldn’t have been a surprise. Now, we’re going back to monetary easing.

The Fed’s Propaganda Victory

The Fed and its apologists in the lying media are trying to gaslight you and tell you inflation has been defeated, which is absurd.

The Consumer Price Index (CPI) is the most politically manipulated statistic in all of government. That is saying something because a lot of government statistics are completely manipulated, but inflation, as measured by the CPI, is probably the most manipulated.

The CPI is a basket of prices trying to measure the average price changes for 340 million Americans. It’s an impossible task because every individual has a different price basket. Consider someone who lives in New York City compared to someone who lives in rural Montana. They have totally different price baskets.

Using the CPI as a measure of price increases for 340 million people is even more preposterous than taking the average temperature across 50 states in the US as a meaningful statistic to determine what clothes you should wear today.

Further, the government gets to cherry-pick what items go in the CPI basket and their weightings. It’s like letting a student grade his own paper.

In short, the CPI is a worthless statistic. It’s misleading government propaganda intended to conceal the government’s atrocious currency debasement. So, according to their own rigged CPI metric, has the Fed accomplished its inflation goal? Nope.

They didn’t even reach their totally arbitrary 2% CPI target before they declared a fake victory. By the way, targeting 2% inflation is a nonsensical concept. Inflation is poisonous at any level. Think of it like a bucket that continuously leaks 2% of the water it carries.

That’s the kind of outcome the clowns at the Fed are trying to engineer for the economy—but they couldn’t even do that.

In short, the Fed’s narrative that inflation has been defeated is so laughably ridiculous that the only explanation is deliberate deception.

Here’s a way to think of it.

Imagine you used to weigh 180 pounds in 2019. In 2020, you gained 10 pounds and are now 190 lbs. In 2021, you gained 25 pounds and are now 215 lbs. You tell concerned friends and family not to worry about your weight gain because it’s just “transitory.”

In 2022, you go on a diet but still gain 20 pounds. You are now 235 lbs. In 2023, you continue on your diet and gain 10 pounds. You are now 245 lbs. In 2024, you have gained 5 pounds so far and are now 250 lbs.

The rate at which you gain weight is down, but your weight has increased around 40%, from 180 lbs to 250 lbs. You now declare victory, end your diet, and go back to the lifestyle that caused the weight gain surge in the first place.

This is the same kind of “victory” the Fed is declaring with inflation and the money supply, which also grew around 40% over a similar period.

In short, they are gaslighting people and spewing propaganda. So, why are they attempting to deceive people? Nobody knows for sure except them.

But if I had to guess, they are desperately trying to conceal the massive economic destruction they have already caused and the coming destruction they will cause, which could be much worse than anything we’ve seen so far.

It could all go down soon… and it won’t be pretty. It will result in an enormous wealth transfer from savers to the parasitical class—politicians, central bankers, and those connected to them.

Unfortunately, there’s little any individual can practically do to change the course of these trends in motion.

The best you can and should do is to stay informed so that you can protect yourself in the best way possible and even profit from the situation.

That’s why I just released an urgent new PDF report with all the details.

It’s called The Most Dangerous Economic Crisis in 100 Years… the Top 3 Strategies You Need Right Now.

Click here to download it now.

As of 5 PM EDT, the most actively traded December contract settled at $2606.20, reflecting a net gain of $19, or 0.73%, for the day. This surge marks the second consecutive day of record-breaking highs, with an intraday peak hitting an astonishing $2614.60.

This remarkable rise in gold prices follows a robust $47 gain yesterday, the largest single-day increase since August 16. The dramatic ascent of gold futures will be remembered as a pivotal moment in financial history, as the market crossed the $2600 threshold.

“The phones have been ringing off the hook,” said Jonathan Rose, CEO of faith-driven gold IRA company Genesis Gold Group. “Americans are seeing the writing on the wall and realizing the best way they can protect their retirement is by backing it with physical precious metals.”

As market participants digest this historic event, their focus is now shifting to next week’s Federal Open Market Committee (FOMC) meeting. This gathering is anticipated to be one of the most significant of the year, with widespread expectations for the first interest rate cut since 2020. Analysts, economists, and market observers largely agree that a rate reduction is virtually assured.

The groundwork for this critical decision was laid on August 20, when Federal Reserve Chairman Jerome Powell indicated the central bank’s readiness to cut rates during a speech in Jackson Hole, Wyoming. This sentiment has been echoed by other Fed officials, reinforcing the belief that monetary easing is on the horizon.

Chicago Fed President Austan Goolsbee recently stated, “long-term trends in both the labor market and inflation data justify a swift transition to a more accommodative monetary policy.” He also warned against “prolonged tightening,” highlighting the potential risks to employment levels.

While the likelihood of a rate cut is high, the extent of the reduction remains a topic of debate. Economists at Fitch predict a cautious approach, forecasting two 25 basis point cuts—one next week and another in December. Conversely, some analysts, including Krishna Guha of Evercore ISI, advocate for a more aggressive 50 basis point reduction to ensure economic stability.

Former Fed Vice-Chair Donald Kohn emphasized the central bank’s adaptability, stating, “the central bank’s flexibility, noting its ability to swiftly adjust policy if inflation resurges, reminiscent of its aggressive stance in 2022.” Current Fed Governor Christopher Waller and New York Fed President John Williams have both expressed an “openness to various cut scenarios, depending on incoming economic data.”

The CME’s FedWatch tool indicates a growing market expectation for a more substantial rate cut. Notably, “the probability of a 50-basis point reduction next week has surged from 28% to 45% in just one day, with a 55% likelihood of a 25-basis point cut.”

As the financial community awaits the FOMC’s decision, the recent performance of the gold market serves as a barometer of economic uncertainty and anticipation. Market participants will be closely monitoring these historic developments, which have the potential to reshape the financial landscape in the weeks and months ahead.

In early September, shares in real estate, utilities, and consumer staples have emerged as top performers. Gold prices continue to rise, and government bond yields are on track for their most significant monthly decline since December, indicating a flight to safety as bond prices increase.

“It’s really been something to see,” said David Bahnsen, chief investment officer at the Bahnsen Group, commenting on the market’s rotation towards defensive assets.

Concerns surrounding the U.S. economy’s health, the potential scale of forthcoming interest rate cuts, and the upcoming November presidential election have led some investors to exercise caution.

The latest inflation report did little to alleviate these worries. Core inflation, which excludes the often-volatile food and energy sectors, came in slightly above expectations, prompting a sharp decline in stocks and bond yields before a late-day recovery.

Since early August, markets have struggled to maintain stability, particularly as some of Wall Street’s favored trades began to unwind and data indicated a potential cooling in the labor market. Major indexes have experienced significant one-day fluctuations, yet the S&P 500 remains only 2% below its July peak and has gained 16% year-to-date.

The once-dominant Magnificent Seven tech stocks have also seen a decline in momentum. Nvidia, for instance, has dropped 7% since its earnings report on August 28, despite posting quarterly earnings and sales that more than doubled—a growth rate that has slowed from the previous year’s rapid pace.

The recent market reordering has positioned the utilities sector in close competition with technology as the top-performing group in the S&P 500 for 2024, with both sectors up over 20%.

The Fed is widely anticipated to initiate interest rate cuts at its upcoming meeting. Investors believe that the unexpected rise in core inflation strengthens the case for a modest quarter-percentage point cut rather than a more aggressive half-point reduction. According to CME Group, the likelihood of a larger rate cut has decreased to about 15%, down from 34% earlier in the week.

As interest rates are poised to decline, the attractive dividend yields offered by defensive stocks become increasingly appealing. The real estate sector of the S&P 500 currently boasts a yield of 3%, followed closely by utilities at 2.9% and consumer staples at 2.2%.

“If you’re going to buy something that might have upside from an equity perspective, but it’s also going to give you money to sit and wait, it’s not a bad place to do it,” said Mark Hackett, chief of investment research at Nationwide.

Bank of America strategists have advised clients to increase their exposure to utilities and real estate, predicting these sectors will benefit from a lower interest rate environment due to their attractive dividends.

Defensive stocks, such as those in real estate, utilities, and consumer staples, are favored because consumers prioritize essential expenses like rent, utility bills, and household goods, even when they cut back on discretionary spending.

Gold has reached new all-time highs since March, driven by a surge in demand for safe-haven assets. Lower interest rates enhance gold’s appeal, as it does not yield income, making it more attractive compared to dividend-paying stocks and interest-bearing bonds. Gold prices have risen 23% this year, outpacing the S&P 500.

“We haven’t had to make the case for gold nearly as much as we’ve had to make the case for OUR gold,” said Jonathan Rose, CEO of Genesis Gold Group. “Retirees in particular have appreciated our faith-driven approach to rollovers and transfers of their retirement accounts into physical precious metals.”

The benchmark 10-year Treasury yield settled at 3.653% on Wednesday, marking the second-lowest level of 2024. Bond yields typically decline as prices rise, and investors often seek the safety of U.S. Treasurys during turbulent market conditions.

Meanwhile, the S&P Global Investment Manager Index’s risk appetite reading has dropped to its lowest level since May 2023. This monthly survey, which gathers insights from approximately 300 institutional investors, reveals concerns about valuations, political uncertainty, and recession risks.

Despite the current market dynamics, stocks appear historically expensive. The S&P 500 is trading at 21 times its expected earnings over the next 12 months, compared to its 10-year average of 18.

The pressing question for investors is whether the current surge in defensive assets is a temporary trend or the beginning of a new market regime.

“We’ve gone through a few of these headfakes, but we think this one is real because rates are going to start coming down,” said Emerson Ham III, senior partner at Sound View Wealth Advisors. “If you get a rally where you’ve got defensive names doing well but also technology performing on a fundamental basis, that’s kind of the best of both worlds.”

Speaking at the central bank’s annual Jackson Hole Economic Symposium on Aug. 23, Fed Chair Jerome Powell said at the conference of bankers, economists, and monetary policymakers that “the time has come for policy to adjust.”

“Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic,” Powell stated in his widely anticipated prepared remarks. “Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”

Heading into the September policy meeting, financial markets will debate the size and frequency of interest rate cuts.

Until then, many might be wondering how the Fed kicking off its easing cycle will affect their finances.

Running of the Wall Street Bulls

In the runup to Powell’s green light to a rate cut, the leading benchmark indexes have performed well and recuperated from the three-day market crash earlier this month.

Year-to-date, the blue-chip Dow Jones Industrial Average is up more than 9 percent, the tech-heavy Nasdaq Composite Index has rallied nearly 20 percent, and the S&P 500 has surged about 18 percent.

Is there more room for gains, or has Wall Street already baked a Fed rate cut into the cake?

The Fed loosening monetary policy as early as next month will likely benefit the stock market, says Robert Johnson, the chairman and CEO at Economic Index Associates and professor of finance at Heider College of Business.

“The near certainty of Fed loosening and falling interest rates in the coming meetings means that investors should be optimistic concerning their expectations for broad equity market returns,” Johnson told The Epoch Times.

Looking at market data from 1966 to 2023, he says, the S&P 500 generated a 16.4 percent return when the Fed lowered interest rates. Conversely, the index has given investors a 6.2 percent return when the central bank has raised rates.

Additionally, in a lower-rate investment climate, the top-performing sectors have been automobiles, apparel, and retail. The worst-performing sectors have been financials, consumer goods, and utilities.

“History is on investors’ side when it comes to post-rate-cut market returns,” according to Craig Fehr, the principal of investment strategy at Edward Jones, in a note.

David Materazzi, the CEO of automated trading platform Galileo FX, thinks the stock market will surge after the Fed’s rate cut and “will certainly cause stocks to burn brighter in the short term.“ At the same time, retail investors must refrain from ”being swept away by the illusion of never-ending growth.”

“This environment can create bubbles and lead to overpriced assets,” he told The Epoch Times. “The smart play is to focus on fundamentally strong stocks that can withstand market corrections when the initial euphoria fades. Don’t let the crowd’s excitement blind you to the real risks that lurk beneath the surface.”

Safe-Haven Assets

The Fed’s high-rate environment for two-plus years has been a boon for bond investors and savers—and financially damaging for borrowers.

Money markets—an arena of short-term debt securities and cash equivalents—have attracted immense investment from institutional investors and armchair traders amid yields of around 5 percent.

Billionaire Warren Buffett and his Berkshire Hathaway hold $235 billion in T-bills (maturities ranging from 4 weeks to 52 weeks), representing about 4 percent of the current supply. This is more than the Federal Reserve’s holdings.

Since the Fed’s quantitative tightening campaign was launched in March 2022, money market funds have witnessed exceptional retail interest.

However, now that the central bank is trimming its policy rate from the current 23-year high of 5.25 percent and 5.5 percent, experts warn bond investors might have to transition to long-term duration instruments.

“As investors become convinced of lower future interest rates, they may invest more into the long end of the yield curve—corporate and treasury bonds with 15, 20, or 30 years’ maturity—where interest rate moves have a greater effect on prices,” Michael Ashley Schulman, the partner and CIO of Running Point Capital Advisors, told The Epoch Times.

The benchmark 10-year yield slumped following Powell’s speech, sliding below 3.8 percent.

Cash’s reign as king over the last couple of years could end, too.

The Fed does not dictate banks’ interest rates on savings accounts, but the central bank’s benchmark federal funds rate does influence rates across the marketplace, Johnson explained.

“Savings account rates will fall as the Fed lowers rates. While the Fed doesn’t set savings account interest rates, its actions influence rates throughout the financial markets from automobile loan rates and savings account rates to mortgage rates and credit card rates,” he said.

“As the Fed lowers its target Fed funds rate, rates throughout the financial markets will fall.”

Gold is another safe-haven asset that would benefit from the institution’s looser monetary policy.

The yellow metal has been one of the world’s top-performing assets in 2024, rocketing 23 percent year-to-date to above $2,500. Although many factors have supported gold’s bull run this year, expectations that the Fed would cut rates have been a driving force because of the opportunity cost of holding non-yielding bullion, says Alex Ebkarian, the COO and co-founder of precious metals dealer Allegiance Gold.

“In a lower interest rate environment, gold tends to become more attractive compared to bonds, as the opportunity cost of holding gold decreases,” Ebkarian told The Epoch Times. “Bonds typically offer weaker returns in such scenarios. Recent adjustments, like Japan’s 0.25 percent rate change, highlight the potential impact of similar moves by the Fed.”

Beyond Interest Rates

While market watchers have concentrated mainly on interest rates, Schulman notes many other factors can influence investor sentiment and the broader financial markets.

“Economic conditions, government regulation, employment, trade and tax policies, and international conflicts also sway attitudes and outlooks,” Schulman told The Epoch Times.

This was observed earlier this month when abysmal economic data triggered recession fears.

During the August 2024 market meltdown, traders panicked about the Institute for Supply Management’s (ISM) worse-than-expected Manufacturing Purchasing Managers’ Index (PMI) and the weaker-than-expected July jobs report that activated the Sahm rule, a key recession indicator. Their concerns were alleviated after three consecutive weeks of decent initial jobless claims reports.

Before the Fed convenes its next two-day Federal Open Market Committee (FOMC) policy meeting on Sept. 17 and 18, the financial markets will digest the August jobs report, more inflation data, and another second-quarter GDP estimate.

Additionally, from the 2024 presidential election to geopolitical tensions, movements on the New York Stock Exchange might be driven by more than just interest rates moving down by 25 or 50 basis points.

In the end, savers might be disappointed in a falling-rate climate, but borrowers and investors will be ebullient in the next policy cycle.

Even with gold and silver prices at record levels, it seems likely that they haven’t hit their peak. For those who want to get in before interest rates are cut, they can back their retirement accounts with physical precious metals by reaching out to Genesis Gold Group.

Prechter expressed his belief that an emergency rate cut is imminent due to the rapid decline in rates. The last time the Fed made such a move was during the early stages of the COVID-19 pandemic. However, many experts argue that another emergency cut could signal that the US economy is in dire straits, potentially exacerbating market anxieties.

In January, Prechter had warned that excessive optimism in the market posed a significant risk. He now asserts that this optimism has become deeply entrenched and that the world is witnessing the most inflated market in history.

Following the release of the July jobs report, which revealed a rise in unemployment to levels not seen since October 2021, global markets experienced a sharp downturn amid concerns that the US economy is faltering.

On Monday, the stock market continued to plummet, with the Nikkei 225 index in Tokyo, the world’s third-largest stock exchange, suffering its worst single-day decline in nearly four decades, plummeting by 12 percent. The S&P 500 dropped 3 percent, marking its most significant decline in nearly two years. The Dow Jones fell by 1,033 points, or 2.6 percent, while the Nasdaq composite slid 3.4 percent.

Bloomberg estimates that approximately $6.4 trillion has been erased from the value of global stock markets over the past three weeks.

According to Prechter, much of this could have been averted if the Federal Reserve had chosen to cut rates at its last meeting. He criticized the Fed for missing a crucial opportunity to lower the Fed funds rate by a quarter point.

Economists at Goldman Sachs have now increased the probability of the US entering a recession within the next year from 15 percent to 25 percent, while analysts at JP Morgan estimate a 50 percent likelihood.

Since March 2022, the Federal Reserve has been raising interest rates to combat inflation, but one prominent economist believes the agency is too focused on this single goal.

The chief economic advisor at Allianz, Mohamed El-Erian, has blamed the Fed for the current state of the market, arguing that the rate hikes are taking a heavy toll on the economy. He expressed concern that the US may lose its economic exceptionalism due to a policy mistake.

Even if the Fed waits until September to cut rates, most industry observers anticipate a rate cut is inevitable.

JP Morgan analysts have written a memo suggesting that the Fed appears to be significantly behind the curve and predicts a 50 basis point cut at the September meeting, followed by another 50 basis point cut in November.

Investors now expect that other major central banks will follow the Fed’s lead and aggressively ease rates, with the European Central Bank anticipated to cut rates by 67 basis points by Christmas.

The anticipated rate cuts by the Federal Reserve could have a positive impact on gold prices. This is because when interest rates are lowered, interest-bearing investments like bonds become less attractive, and investors often turn to gold as an alternative investment. Additionally, gold prices have historically risen when the Federal Reserve has cut interest rates.

Learn how you can take advantage of the current financial upheaval and protect your retirement with a Genesis Gold IRA from Genesis Gold Group.

Given the smoothing and heavy lag in the Case-Shiller data, it’s hard to find a causal relationship between prices and mortgage rates, but with rates remaining above 7%, it seems hard to believe prices can continue their advance…

…but home prices are still tightly correlated with Fed Reserves which have slowed down…

…and a peak in the rate of price growth appears clear across all metros…

How is Powell going to cut rates when home prices are still rising near 7% per year?

But staying on the path that we are currently on is only going to end in disaster.

Mark Spitznagel, the chief investment officer of Universa Investments, recently warned that he believes that the “worst market crash since 1929” is ahead of us…

One of Wall Street’s most bearish skeptics told Business Insider last month that he thinks the “worst market crash since 1929” is coming.

For years, our leaders have been “kicking the can down the road”, but according to Spitznagel all of that intervention has set the stage for an absolutely epic collapse…

In an interview with New York Magazine’s Intelligencer last year, Spitznagel likened the Fed’s “constant monetary intervention” to forest fire suppression.

He went on to say “when you suppress it enough, it gets to a point where you can no longer afford to have any fires burn because they would be too big and too intense.”

That’s where the U.S. economy is at, according to the hedge fund manager.

If Spitznagel’s dire market predictions come true, you really don’t want to have all of your eggs in one basket — because that basket could easily go up in flames.

In the months ahead, we will want to keep a very close eye on our banks.

Our banks are the beating heart of our economic system, because without the banks we would not have a functioning economy.

The banks are where we get mortgages to buy homes, auto loans to buy vehicles, and credit cards to go on shopping sprees. Without the credit they provide, we would be in a world of hurt. Unfortunately, our banks are in very serious trouble right now.

Higher interest rates have blown a hole that is hundreds of billions of dollars wide in their balance sheets. And they are sitting on mountains of commercial real estate loans that are going bad because the value of commercial real estate has collapsed all over the nation.

One consulting firm that examined data from approximately 4,000 U.S. banks is warning that hundreds more banks could potentially fail during this crisis…

According to recent reports, hundreds of banks face the potential of failing just like Republic First Bancorp.

Consulting firm Klaros Group analyzed roughly 4,000 U.S. banks and found that the banks face a threat of losses due to “secular changes in social patterns accelerated by the COVID pandemic (such as work-from-home, which has materially impacted demand for office space) and to the impacts of higher interest rates and related inflation.”

“You could see some banks either fail or at least, you know, dip below their minimum capital requirements,” Christopher Wolfe, managing director and head of North American banks at Fitch Ratings told CNBC in an interview.

Meanwhile, we continue to get even more signs that the overall economy is really slowing down.

For example, we just learned that Rue21 is going to be shutting down all 543 of their stores…

Rue21 – the teen fashion chain that is a fixture in malls across America – is to shut all 543 US stores.

Customers will be able to pick up deals while the company clears its stock over the next four to six weeks – but then the 40-year-old chain will be gone forever. At its peak, it had 1,200 shops.

It is expected clearance items will start at 20 to 50 percent off then rise up to as much as 90 percent to clear stock that doesn’t initially sell.

All over America, stores are closing, businesses are fleeing our core urban areas, and once bustling office buildings are standing empty. At this stage, everyone should be able to see where all of this is heading.

The Chinese certainly understand the direction that things are moving.  The following comes from an article entitled “China Is Buying Gold Like There’s No Tomorrow”…

“China is unquestionably driving the price of gold,” said Ross Norman, chief executive of MetalsDaily.com, a precious-metals information platform based in London. “The flow of gold to China has gone from solid to an absolute torrent.”

Gold consumption in the country rose 6 percent in the first quarter from a year earlier, according to the China Gold Association. It came on the heels of a 9 percent increase last year.

Chinese consumers are voraciously buying gold because their own economy is crumbling and they can see what is happening to the global economy as a whole.

At the same time, China’s central bank is gobbling up gold at an unprecedented rate…

Another major buyer of gold in China is the country’s central bank. In March, the People’s Bank of China added to its gold reserves for a 17th straight month. Last year, the bank bought more gold than any other central bank in the world, adding more to its reserves than it had in nearly 50 years.

Beijing is buying up gold to diversify its reserve funds and reduce its dependence on the U.S. dollar, long considered the most important currency to hold in reserve. China has been reducing its U.S. Treasury holdings for more than a decade.

Traditionally, buying gold and other precious metals has been a way to preserve your assets if you think that a major crisis is coming.

And the truth is that a major crisis has already begun.

I have been warning my readers that 2024 would be a very important year, and that has definitely turned out to be the case.

Of course all of this is very bad news for Joe Biden.

He had been hoping that an improving economy would help his chances in November, but instead there has been a dramatic shift in the wrong direction just as we enter the most critical months of campaign season.

Michael’s new book entitled “Chaos” is available in paperback and for the Kindle on Amazon.com, and you can check out his new Substack newsletter right here.

Stock and bond markets took this as a good sign. They were already in a Santa Claus rally and broke out to new highs for the year. The interest rate on ten-year government bonds, which had already fallen by almost 1 percent since October, threatened to break support and go even lower. Financial journalists were all smiling with exuberance talking about the “Fed’s pivot.”

However, so far, this is just talk of a Fed pivot, not the actual Fed pivot, and its talk about the suggestion of a possible pivot. Most importantly, it’s all just talk that is positively goosing markets in the direction that Jay Powell wants: gains in stock and bond prices and lower interest rates in the economy heading into an election year. Investors, governments, and incumbent politicians love it. Incumbent politicians hope it all lasts past election day and they usually get their way.

From the Fed’s position, this will help them maintain three things:

1. Their “higher for longer” sloganeering,
2. The “soft landing” scenario,
3. And most importantly, the Fed’s effort to reestablish its reputation, which was tarnished by their claim that the double-digit inflation from last year was only “transitory” as well as their tarnished image as a white knight, or economic savior, that is always ready, willing, and able to save the system.

I must admit that incumbent politicians usually get their way in election years and that they get unusually cooperative and bipartisan when it comes to election year politics. I’ve also admitted on previous episodes that the worst of the next economic crisis will probably get papered over until after the next election, especially the call of an official recession.

However, that is still going to be a tricky maneuver this year, given the contractionary and recessionary condition in the US, China, and most of the world. Especially with the European Union and New Zealand already slipping into recession.

I will do a recap of the economy in the next episode, but this episode will concentrate on longer term historical experience. This experience points in the general direction of an economic crisis ahead. It certainly does not point to the rosy outlook that markets seem to see.

We start this analysis with the historical experience regarding the Fed’s business cycle in the US economy during the post–World War II era. This is the period when the US dollar is the preeminent world currency, the US economy is the world’s economic superpower, and the Fed is the most important central bank in the world and the primary driver of world business cycles.

The first pattern that emerges is that unemployment hits a cyclical low just prior to official recessions and economic crises. Labor markets look unusually good just before they become very bad.

The second pattern that emerges is that the Fed reacts to bad economic conditions by cutting the federal funds rate, which is the base policy interest rate in the economy. This is when the Fed poses as a white knight, saving the economy, when in fact it caused the problem in the first place.

From World War II to the new millennium, the Fed’s rate cutting pattern was generally coincidental with recessionary periods in that the cuts started to occur during periods that would later be officially labeled recessions.

From 2000 to the present, the Fed’s rate cutting started to take place in advance of the official recession periods, preemptively, like they knew something was coming and were taking preemptive measures.

With no noteworthy exceptions, historical experience shows a lockstep linkage between recessions and the Fed changing policy in the direction of cutting its policy interest rate: the federal funds rate of interest.

I want to emphasize this: this change of policy of lowering interest rates is the “Fed pivot” everyone is talking about. However, this Fed pivot has historically ushered in bad economic times for most folks.

Of course, after they have overdone this policy of cutting interest rates and created an artificial expansion in the economy, possibly a stock market bubble, there is the other type of Fed pivot when they begin to raise rates again to supposedly to curb the higher rates of price inflation they have caused in the economy. The only other possible case is the Goldilocks scenario of a soft landing, but we don’t have historical experience to discuss that situation.

A stable stock and bond market could mask worsening conditions in the economy in 2024. So could very low unemployment rates that have been caused in part by the large reduction in the labor force caused by covid policies. A future article will explore some of the possible excuses that might be used to explain away the failure to achieve the soft landing and to set the stage for the “white knight.”

About the Author

Mark Thornton is the Peterson-Luddy Chair in Austrian Economics and a Senior Fellow at the Mises Institute. He is the book review editor of the Quarterly Journal of Austrian Economics, and has authored seven books and is a frequent guest on national radio shows.

Then, stocks fell at the beginning of the year when the release of the notes of the Federal Reserve Board’s last meeting suggested the Fed would not hurry rate cuts. The likelihood of a delay in cutting rates was further increased by a “positive” December Jobs report.

The jobs report did show unemployment remaining low and wages slightly increasing, but the news was not all positive. One of the report’s most troubling items is that a top source of increased wages is government. An increase in the salaries of government employees also increases government debt, which will have to be paid for by taxes. Since tax increases are unpopular, the government relies on the Federal Reserve to do the dirty work by purchasing federal debt instruments and thus creating more inflation. This inflation tax is the worst of all taxes because it is regressive and hidden.

If the Fed allowed interest rates to increase to anywhere near what they would likely be in a free market, interest rate payments on the federal debt would rise to a level causing a financial crisis. Even though the federal government will soon spend more on interest on the federal debt than on the Pentagon and the military-industrial complex, few in DC are serious about cutting spending. Federal debt increased by one trillion dollars from mid-September to the beginning of the new year. It is expected to increase by around another trillion dollars by the end of March! To put this in perspective, consider that the federal debt did not reach a trillion dollars until 1981 — almost two hundred years after the Constitution was ratified.

Continuing increases in federal debt and Federal Reserve created inflation will lead to economic crisis caused by a rejection of the dollar’s world reserve currency status. There is already resentment over the US government’s use of the dollar’s reserve status to support US sanctions This is why Russia and Iran recently signed a deal to trade in their own currencies rather than in dollars and Russia is no longer accepting dollars for its oil.

President Biden has kept his promise to refrain from criticizing the Fed’s conduct of monetary policy. In contrast, his predecessor regularly took to Twitter to lambaste the central bank. This means the Fed will likely try to help President Biden by trying to keep interest rates low enough to not increase unemployment yet high enough to not increase price inflation.

While Donald Trump is more likely than Joe Biden to challenge the deep state and neoconservative foreign policy, the truth is neither Biden nor Trump will seek to reduce spending. Unless a critical mass of Americans demand an end to the welfare-warfare state and the fiat money system, the soft landing sought by the Fed and the politicians will turn into a hard crash.

Figure 1: Ten-year US Treasury bond yield with constant maturity from January 1981 to October 11, 2023 (percent)

Initially, financial markets expected only a relatively short phase of increased interest rates. At the beginning of March 2022, the US long-term interest rate fell below the short-term yield—so the yield curve became “inverted,” a clear indication that investors expected short-term interest rates to be cut sooner rather than later.

However, since July 2023 at the latest, long-term interest rates have been rising strongly and unabatedly. Something very fundamental has presumably happened—investors are no longer willing to hold US government debt at ultra-low yields as before. Where did the change of heart come from?

Investors may have become increasingly aware of the enormous debt problem in the US, which investors had taken lightly for so long: Uncle Sam is sitting on a mountain of debt worth more than thirty-three trillion US dollars, which is equivalent to around 123 percent of US gross domestic product (GDP). Plus, the debt dynamic is relentless: by the end of the decade, the debt could reach fifty trillion US dollars. Previous large buyers of US debt—such as Japan, China, Brazil, Russia, and Saudi Arabia—are no longer interested. Who will buy the huge flood of new US government bonds intended to finance deficits of around 6 percent of GDP in the coming years?

It appears that the US administration has squandered a lot of investor confidence, not least by freezing Russia’s foreign reserves at the beginning of 2020. It has since become abundantly clear to many investors from non-Western countries that US investments carry a political risk for them. Therefore, anyone who holds US dollars or invests in US debt securities demands a higher interest rate. It’s not just the US feeling the effects of this interest rate shock; the rest of the world isn’t spared either. The increased credit costs will make life difficult or even unaffordable for many debtors—consumers and producers.

The result will be an economic slowdown, more likely even a recession because loan defaults are already increasing again and will likely dry up the credit market. The flow of new credit and money into the system will dwindle, and the demand for goods will decline. This will be particularly problematic for many highly indebted countries. The mountains of debt they have accumulated and continue to increase are the result of a so-called Ponzi scheme—named after its “inventor” Charles Ponzi, probably the greatest fraudster of his time.

The state Ponzi scheme goes like this: States go into debt, and when the debt comes due years later, the states pay it off by taking on new debt—increasing the existing debt load. Investors buy the government bonds because they assume that there will be investors in the future who will buy the newly issued government bonds. In turn, these future investors assume that, in the even more remote future, there will also be investors who will buy the new debt that will be issued then. So on and so forth. Of course, no one here expects actual repayment, and to be true, repayment of the debt is impossible.

Now, interest rates have fallen over the last four decades, and the fraudulent game has worked quite well—for the states and the special interest groups that seek to harness this game for their own purposes. States could easily accumulate more and more debt, and the debt that became due could be refinanced with loans at ever-lower interest rates. Now, however, the situation has changed dramatically.

As I said, interest rates are rising while debt is already very high, and there will probably be a rude awakening soon. Investors have to fear a deterioration in the debt sustainability of many countries—especially since the probability that any country will abandon their debt-accumulating spending is fairly low. So, the expectation that there will be investors willing to subscribe to newly issued bonds at relatively low interest rates will be disappointed in the future.

Then, it won’t be long before investors start to worry and panic—because they understand that the foreseeable increase in debt-related interest payments will crush many states’ finances. The painful truth is that there is no easy way out of a Ponzi scheme—at least none that would not demystify the national debt and all the lies and deception that go with it.

Maybe the bond markets will calm down again before things get explosive? Will US long-term interest rates find a new footing at, say, 5.5 to 6.0 percent? Will interest rates like in the 1980s—bond yields of more than 10 percent—return? The correct answer to these questions is of utmost importance for investment success.

In my opinion, an imminent end to the rise in interest rates on both sides of the Atlantic is rather likely. After all, officially measured inflation is already falling noticeably, and banks are putting the brakes on lending. The money supply in the major economies is already shrinking as a result of central bank interest rate increases, and the consequences of this shrinking will force economic activity to its knees. Then, once the economy contracts and mass unemployment hits like a tidal wave, it is very likely that interest rate increases will be reversed soon.

Moreover, it should also be borne in mind that the powerful “fiat money system”—the collusion of states, banks, major institutional investors, and large companies—will not be so easy to upset. Should the rise in interest rates become too strong from a political point of view, yet another deep dive into the bag of tricks can be expected. Central banks, for example, will start buying government bonds again, thereby fixing long-term and short-term interest rates at “reasonable” levels. Of course, all of these monetary policy tricks basically amount to one thing: paying off the outstanding bills with newly created money—or in other words, inflation policy.

That is the big lesson that can be drawn from the interest rate shock resulting from the Ponzi scheme in the debt markets: the systematic decline in the purchasing power of money, even if short-term relief is granted, is almost certain.

About the Author

Dr. Thorsten Polleit is Chief Economist of Degussa and Honorary Professor at the University of Bayreuth. He also acts as an investment advisor.