All eyes in the financial world will be once again on Janet Yellen on December 16th, as she announces a decision to raise rates by 0.25% or to leave them at 0%… where they have been for exactly seven years.
That’s right, the Federal Reserve lowered interest rates to an unprecedented 0% level on December 16th, 2008, meaning that if they do raise rates this week it will have been at 0% for exactly seven years to-the-day. That’s an interesting factoid considering how much we’ve covered the Shemitah, or the 7 year cycle, this year.
As usual, we’re exposed to the financial elite’s wearisome, numerical mumbo-jumbo. But, let’s not forget that Yellen NEEDS to raise rates in order to establish the Fed’s continuing credibility, such as it is. Whether she will remains to be seen. Rates have been “zero-bound” for a very long time.
As is visible below, the last time the Fed actually raised rates was on June 29th, 2006… nearly a decade ago!
Back then, rates were over 5%.
The reason rates haven’t been raised nor ever will be raised substantially (0.25% doesn’t really count!) is because of the following chart.
The last time the Fed raised rates was on June 29, 2006. At that time, the total US federal debt was $8.4 trillion. Today the total debt of the US federal government is $18.7 trillion, a 123% rise!
With a debt of $18.7 trillion, if interest rates were allowed to rise to where they last peaked in 2006, at 5.25%, that would mean nearly $1 trillion per year in interest payments owed alone on the national debt.
The total “revenue” of the US government is $3 trillion. Therefore, more than 30% of tax “revenue” would go to pay interest on the debt alone. Obviously, interest rates rising to 10% would see well more than half of all tax “revenue” going towards interest payments on the debt alone. And at 16% the entire tax “revenue” of the US government would go to make interest payments alone. Of course, if you consider that most of the government’s debt is at the 5-10 year duration, and that typically the yield curve is positively shaped, the numbers get a bit worse. And if we assumed the debt grew more – as interest rates rose – or that tax revenues fell owing to a slump in production they get worse still.
For these reasons, as well as where we probably are in the Austrian model of the boom-bust cycle, we won’t see a Fed interest rate of over 1% until the dollar collapses and/or they are forced to chase price inflation from a safe distance.
In fact, just two days before the big decision, the Fed has been back-pedalling already on weak consumer credit and retail numbers and a collapsing junk-bond market. Many central banks are already going in the opposite direction.
The Bank of Canada said last week that negative interest rates were an option.
Even a 0.25% interest rate hike could destroy the entire financial and monetary system! That’s how fragile this entire system is now after exactly 7 years at a 0% interest rate.
Chances are it’ll take a little more than that, but it is amazing to see the size of the swoons in the past few months as market expectations swung from the affirmative to the negative and back over the past two quarters… just over 25 bps.
We’ve been working furiously all summer and fall helping TDV subscribers to not only survive but profit off of the coming collapse. Our special-rate/three-month Survive Shemitah offer expires on December 21st and we’ll never have rates that low again. Subscribe now and you’ll receive our next issue coming out in the next few days with information, analysis, recommendations and ideas on how to survive and prosper during and after the dollar collapse.
Originally Appeared At The Dollar Vigilante