Market Update: The Fed's Big Lie

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Insanity is doing the same thing over and over again, but expecting different results.

Federal Reserve Chairman Jerome Powell announced on Thursday that the Fed will now shift its focus from hitting inflation targets and instead prioritize closing “unemployment shortfalls”.

This gives it the aircover to do “whatever it takes” until the unemployment rate is back down into the low single digits. Inflation can now run hotter than 2%, rates can stay at 0% (or go negative) for the next decade+, more QE… all is fair game now in the pursuit of lower unemployment.

Essentially, the Fed is now tripling-down on the same failed policies that have created today’s zombie economy and the worst economic inequality in our nation’s history.

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Perhaps the folks at the Fed are smarter than we think, and there’s actually a grand plan they’re pursuing that’s going to work out to society’s benefit?

Sadly no, reveals this week’s expert guest, Danielle DiMartino-Booth. Danielle knows the Fed inside and out, as she worked as a consultant for nearly a decade to Richard Fischer, President of the Federal Reserve Bank of Dallas, including helping deal with the Great Financial Crisis. She knows how the organization runs, as well as the specific people running it.

And her assessment is that the Fed is trapped in a nightmare of its own making and is merely playing for time at this point. Everything it throws at the situation is designed to hopefully get the system to limp through the next quarter or two without breaking, at which point they’ll scramble to come up with the next short-term “solution”.

In the video below, Danielle breaks down the important takeaways and repercussions of Chairman Powell’s Jackson Hole speech and vents her frustration at both his duplicity with the public and the media’s cowardly refusal to hold him to account.

As our other recent guest experts have warned, Danielle confirms this is an exceptionally treacherous time in the markets for investors, as the Fed’s intervention has and continues to deform and distort prices far beyond reason:

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This is a companion discussion topic for the original entry at https://peakprosperity.com/the-feds-big-lie/

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Good discussion. I have a few issues though:
Danielle seems to be suggesting that the Fed is the one who would be taking political influence from the government. I find this hard to believe considering the bankrupt US government is the one who is indebted to the Fed. If anything the Fed is in complete charge and the government is run by paid-for puppets, as is the media.
As to the question of whether the Fed is just tying to hold the system together with rubber bands based on their generally good but misguided intentions to try to revive the US economy, versus having some grand evil plan, I also find this hard to believe. They would not have been able to extend things this far if they were bumbling idiots. And the direct transfer of wealth they are giving Wall Street confirms that they know exactly what they are doing and it has nothing with stimulating any economic recovery. I agree that they are trying to hold the system together with rubber bands, because this system continues to serve them. They have a plan and they are fulfilling it. As Mannarino says, to be the lender and buyer of last resort, to be the owner of the world. With every new dollar of debt they issue to others, who then owe it to the Fed, the Fed becomes stronger. I wish I could have this power. Write the laws to force everyone to use the currency that I print up in my living room or make on my computer out of nothing; as I get wealthier and wealthier from this and everyone else becomes impoverished as a result and needs to borrow from me (since, don’t forget, I have declared myself to be the only one allowed to issue currency), I then end up owning the world through my computer screen. What a deal!!!
As to the observation that there has often been minor dissent within Fed ranks historically regarding its dovish stance, I would tend to think that this dissent is manufactured to create the illusion that there is are options to the path the Fed is taking, which there isn’t. It’s theatrics.
They are trying to hold this system together for as long as they can, and milk as much wealth from it as they can, until the reset happens and new system is put in place to further their goals of enslaving the world as it falls to its knees to the Fed-created financial catastrophy.

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As further evidence that it’s all predetermined, I’ve noticed a few times how trading over the day will bring a stock up in price and then you watch it go down to close exactly where it started for 0.0000% change.
And today, AAPL closed exactly at $500. So what are the chances that months ago someone made the decision that AAPL was going to split on Aug 31, and that the price would be $500? Pretty high IMO.
I wonder what the price plan is for TSLA going forward?
You can be sure this price plan includes a market crash of X % on Y date.

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As I sit and figure how printing money like crazy cannot and does not cause hyper inflation, the realization that all the printed money flows to the wealthiest. It is then retained by those few, and not spread into the economy. The over-all effect is stable inflation where those ultra rich can still buy goods and services on the cheap while having even greater purchasing power but not technically not using it, there by keeping inflation down. Its a nice game… when you print money like crazy , and hand it to a select few where it does not alter the over-all buying power of masses or a dollar.

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And that money printing is offset by deflation in Main Street.

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Who was the “canned” journalist she is referring to…and Adam knew immediately? Would love to read up on the person, story, issue and outcome! At the 14:50 point in the video,

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For the back story, read this

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Whilst I found this interview interesting, I was saddened that there was no mention of hyperinflation. Powell us that the Fed is prepared to let inflation run hot in order to benefit the unemployed.
Weimar Germany did something similar before 1923 when it printed more and more marks because the people wanted more marks on account of rising prices. It seems to me that what Powell wants in regard to unemployment is “to print marks because the people want more spent on them”.
Inflation started in 1913/14 in wartime Germany, and the mark fell to 11% of its pre-war value in December 1919, and long before the Versailles punitive requirements were published. From 1920, inflation worsened until the hyperinflation of 1923. So, only ten years from the start of printing money by the Kaiser to the death of the mark in 1923.
Does this history not require that hyperinflation should be used as a descriptor much more frequently than it is? This gross printing of currency is seriously interesting only when understood in terms of the death of the dollar.
The only personal, individual response to hyperinflation is to own bullion.

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Yep, you’re spot on.
A billionaire can only drive one car, physically be in only one house, eat 2200 - 4000 calories of food per day. Virtually all their money does not circulate and just exist as digits on a bank computer ledger or as physical assets that just sit there. In the technical jargon we say the velocity of money of wealth people is almost zero. Inflation = quantity of money relative to resources x velocity.
If the billionaire were to give all their money to the very poor then they would most likely spend that money and it would circulate in society. The velocity of that money would increase and inflation would increase with it.

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We live an unsustainable lifestyle based on burning the Earth’s fossil fuel legacy. As Net energy from fossil fuels peaks so will global GDP. We have a choice, decend the down the otherside of the Gaussian curve or delay the descend by bringing future GDP forward in time. The Fed, together with all central banks round the world, politicians and people in general support the latter policy. Evolution dictates that we prioritise short term survival.
Debt brings this future consumption forward in time. As the present catches up with the future, debt goes exponencial before collapsing . The Gaussian curve will have been converted to a Seneca cliff. At my age and wealth I may avoid the downward descent of the Gaussian, while the young and poor will experience the cliff edge of the Seneca.

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Nice picture of a Seneca curve.

“Fortune is of sluggish growth, but ruin is rapid” - Seneca 4 BC - AD 65
He also said “Life, if well lived, is long enough”

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Bear in mind that the “The electric Age” or “hydrogen economy” is fuelled predominantly by Natual gas and coal. Solar, wind or hydro are only a small source of energy at the moment (under 15%) and themselves cannot be renewed without considerable fossil energy input.

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CHINA beige book - interesting info
https://youtu.be/iP3zIW77JTk?list=UUYPBim2ARV9Yrqci0ljokFA
 

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The only personal, individual response to hyperinflation is to own bullion.
I think the best personal response to hyperinflation is to cut consumption, build local networks, and become self-sufficient in food/energy/water (which is really not that hard)...and ride it out. Bullion? Not an effective response at all. Why? Because in the highly, highly unlikely event we see hyperinflation, the USA would immediately ban/outlaw/confiscate bullion on severe felony charges, making it worthless for the crisis. But we are nowhere near hyperinflation, and it is extremely unlikely we see it. Not even worth considering. Because again, the USA 1) has most of the gold, 2) most of the oil production, 3) most of the food, 4) tons of coal, 5) biggest military, 6) reasonable political stability. And hyperinflation really is a political event when a nation loses control of their nation's currency, and the USA is not likely to ever get near this without a world war or a lot bigger issues. The USA, due to her strengths in almost every category, is the very last nation on earth that will experience hyperinflation.
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In Canada, currently, the wealthy seem to be sheltering in the stock market and real estate. I totally agree with the deflationary forces you describe, with the exception of house prices, in desirable areas. I don’t know if the U.S. is similar, with regards real estate.
I see the fed as attempting to extend what is essentially a pyramid scheme. When money is loaned or financed (not merely printed) into existence, a literal base requirement is stacking the bottom tiers of the pyramid with bodies that continue to borrow. This isn’t just the federal reserve. One way or another it will occur, in the later stages of capitalism, through one means or another.

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Supply and demand, like the FED policies is not working for the middle.
Another change in the housing market - not just fleeing megacities, but also elderly trying to dump their suburban McMansions as they drive less for walkable communities where you don’t need to take long drives for groceries. I love the idea of the state just overriding the local laws/deed restrictions which make it impossible to split up the lots and rent empty bedrooms. Family owns some lots in a small town and we were able to negotiate with the city and neighbors to zone them high-end multifamily, but not single-family so the older residents could always rent a room.
FYI, we discovered they had been zoned agricultural, but community decision was that nobody really wanted pigs and goats across the fence, while nothing about residential zoning prevents a huge garden. There is a way to protect near-by homeowners while allowing sane development for higher density.
https://www.cnu.org/publicsquare/2020/08/24/great-senior-short-sale-threatens-housing-market

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The pig-in-the-python effect of the baby boom is now coming towards an end, and it’s causing much (most?) of the crazy economic distortions we see today. Much of the Fed’s seemingly nefarious behavior is just flailing about trying to stop these wild changes (that are inevitable).
People forget that the crazy inflation of the 1970s was merely due to massive demand from all the boomers coming of age, while Volker’s Fed kept rates high, driving that demand overseas into Japan and Europe to provide Boomers with cars and dishwashers they desperately needed. And now, it’s going the other way. For example, we saw more housing starts than ever before in US history with half the population in '71. Much of the massive importing/dumping of immigrants into the US today by the PTB is merely a desperate attempt to bring in young people to prevent the inevitable economic unwinding (read: deflation). The fact the boomers had no kids is the primary driver of economics today, and they still need to sell their stuff to somebody. Rock and a hard place for the Fed. So they drive asset prices up and impoverish the boomer’s grandkids. Groovy!

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Totally agree with you. I have written about the pyramid structure of money creation a few years back as a comment on Peak prosperity.
95% to 98% of money in circulation is created as debt and needs to be paid back. However the money gravitates up the pyramid to be hoarded by the very rich at the top of the pyramid. This means that the people at the bottom of the pyramid can’t repay the debts unless the pyramid is continually being expanded below them. Putting this another way, the base of the debt pyramid needs to constantly expand in order for the rich at the top to hoard the money and for people near the bottom not to default on the debt.
And before anyone replies that interest money is not created they are wrong. Interest money is created beforehand whenever banks pay for assets, goods and services, dividends, wages, bonuses etc. Interest money is not the reason why the debt pyramid needs to expand.

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“The fact the boomers had no kids is the primary driver of economics today, and they still need to sell their stuff to somebody.“
Hey MKI, I am a boomer with kids and can tell you they don’t want our stuff. I could pretty easily sell my house but the stuff? No way. Best,

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I could pretty easily sell my house but the stuff? No way.
Eddie, good chuckle here! Amen. But just in case I'm misinterpreting your sense of humor...by "stuff" I mean your stocks, bonds, & homes (well, I will take your all-original lime green '71 Mustangs & original Led Zeppelin LPs though).