The Federal Reserve stayed at 0% interest rates for exactly seven years, to-the-day when Janet Yellen finally stopped dithering and increased rates a whopping 0.25%.
Meanwhile, most citizens were preoccupied with a new movie about an orphaned boy who becomes radicalized after a military strike killed his family. ¨This young man is indoctrinated into an ancient religion, joins a band of rebel insurgents and carries out a terrorist attack killing 300,000 people. The movie? Star Wars.
But, as they cheer on this insurgent terrorist at the cinema, watch GOP candidates argue about who will be the first to turn the Middle East into a glass parking lot and prepare for Christmas… their monetary overseers have finally put the first nail in the coffin being prepared for the collapse of the US dollar reserve system.
To be fair to Janet, poor patsy, the system is going to collapse no matter what she does.
The markets already had priced in a rate hike over the last six weeks and if she didn’t take the opportunity to raise rates now the Fed would have lost all credibility… the fact that it has ANY credibility whatsoever boggles our mind. But that’s what you get from 12 years of state indoctrination via Keynesian public schools.
We’ve made the case over the years for why this is all headed for collapse. And in our December issue, that went out this morning, pre-Fed, I don’t think I’ve made a better case for why it is not only inevitable but now imminent.
TDV’s Senior Analyst also took his game to a new level with an amazing analysis of all the moving-parts of why this is destined to fail… and soon.
He even made the call that the Fed would raise rates and there would be a short-term rally afterwards… which turned out to be exactly the case.
But he also pointed out some of the best evidence of why things are going to change in a big way, and soon.
It was information and analysis that I’ve never seen so well laid out by any analyst on the planet… and it’s why our billionaires subscribers listen to what Ed has to say.
His analysis is predicated on tracking the money supply of central banks around the world. It’s probably one of the most important statistics to watch and yet hardly anyone pays attention to it or even understands it. It seems only an astute few Austrian economics experts track it (properly) or even acknowledge its importance.
Here is an Austrian economics tracking of the US money supply (thanks to Mike Pollaro for the chart):
As can be seen, the last two times the trend has been in a sizeable decline were in 1998-2000, just before the tech bubble collapsed and then 2001-2007, just before the financial crisis in 2008. It has now been in decline from 2011 until today. One reason this statistic is so important is because it is the Fed’s main tool for manipulating the overnight bank and formal lending rates. It doesn’t simply decree the rate of interest.
It is also important because it is the reason we have unsound booms… i.e., we have “bubbles.” By creating money, the fractional reserve banks, or the central bank that supports their inflationary schemes, forcibly lower the rate of interest, encourage the consumption of wealth, discourage and displace savings, produce malinvestment, and essentially create economic chaos. It is unsustainable because wealth is being destroyed – not created – by the policy, and when the central planners try to withdraw it, the shortfall in savings becomes apparent too. Projects lay abandoned, unfinished, and unemployment rises.
When it comes to interest rates, the result is an unsound boom, and the cure is its liquidation… which the central bankers never want to allow (because it would destroy the banking system). There is no way out of this. The interest rate suppression did not stimulate anything but consumption, and it did this by trickery and deceit so that the increase in consumption came at the expense of lasting wealth.
The economy isn’t suddenly going to grow, as Wall Street expects. This policy has harmed the engine of growth.
And now it is being withdrawn.
So the illusory ‘boom’ – the increase in consumption and malinvestment simultaneously – is sputtering. The ONLY way to keep it going now is to increase the growth rate in money and to continue to do this until we are wiped out by hyperinflation.
That’s because there is no other way to increase BOTH consumption and investment. There is a trade off. That’s where true savings come from. And that’s what funds sustainable growth independent of the Fed. That’s what most people don’t know.
The Federal Reserve has fooled a lot of people. Its policy has not only produced a malinvested economy rife with imbalances and deficient in savings. It has fooled investors all over the world into buying dollar assets again, and has put the US dollar in the same predicament that it was in 1999 at the height the tech bubble (when Ed Bugos told clients to sell the dollar and tech stocks and buy gold). It is overvalued now, which is evident in the chart of the EU trade balance below.
And when the unsound boom is exposed for what it is, we will see the dollar collapse story get a major overhaul. You haven’t seen anything yet.
Originally Appeared At The Dollar Vigilante