The Fed is “one and done” for rate hikes.
We called this back in mid-2015. The US economy is far too weak for the Fed to engage in anything resembling a series of rate hikes. Corporate leverage, household leverage, even the national debt stand at levels that limit the Fed from hiking rates.
The Central Banking insiders know this. Which is why Former Fed Chair Ben Bernanke admitted in private luncheons with hedge fund managers that rates would not “normalize” in his “lifetime.”
The Fed is not interested in the economy. It is interested in the bond bubble. All of the talk regarding Main Street, employment, etc. is just that “talk.” The Fed will not, under any circumstances permit the bond bubble to burst because doing so would implode its true owners: the private banks.
The Fed is a privately held institution. The US does not own the Fed. And while Fed Chairs might take some marching orders from sitting Presidents (just as Janet Yellen was recently told by Obama to not raise rates again until after the election), the large banks are the TRUE controllers of the Fed.
Bonds, particularly sovereign bonds, are the senior most collateral sitting on the big banks balance sheets.
These bonds are what backstops the $700 trillion derivatives market. $1 in your typical Treasury is likely backstopping over $300 worth of trades in over the counter markets that are completely unregulated.
The vast bulk of these derivatives are based on interest rates or bond yields.
What are the odds the Fed would risk blowing up the derivatives market, thereby imploding the very banks that own the Fed?
Absolutely ZERO.
The Fed is “one and done” for rate hikes. It was a symbolic move brought about by political pressure after seven years of ZIRP. The Fed raised rates a mere 0.25% and the financial markets entered a free fall. That’s the end of that. Anyone who argues otherwise based on “data” or the “state of the economy” is ignoring the facts of how the financial system operates.
So what does this mean?
The bubble will continue to grow until it bursts. The world has added $57 trillion in new debt since 2007. The fastest growing segment of the debt markets has been government debt, which has grown at an annualized rate of over 9%.
This bubble will burst as all bubbles do. Given the ongoing revolt by Japan and Europe against negative interest rates, it’s only a matter of time before it does.
And this time around, unlike in 2008, when the Crisis hits, it will be ENTIRE countries that go bust, NOT just individual banks.
The time to prepare for this is now, BEFORE it hits.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research