The Fed Will Raise Interest Rates

The Fed Will Raise Interest Rates

The Fed will raise interest rates on the pretext/false narrative that the economy is doing well.

If data continues to come in negative the Fed will insist it is transitory and the economy will improve in the second half.

Higher interest rates are necessary to promote U.S. Treasury Bond sales and a strong dollar.

Higher interest payments can be covered by selling increased nominal amounts of Treasury Bonds.

Podcast Summary

Introduction 0:00-6:04

The Fed and Interest Rates

6:04-8:47

The Fed will raise interest rates on the pretext/false narrative that the economy is doing well. If data continues to come in negative the Fed will insist it is transitory and the economy will improve in the second half. The Fed needs to raise interest rates to provide a cushion for when they need to cut them again when the economy falls “unexpectedly”. They also need to raise rates to boost the dollar and demand for U.S. Treasuries to combat de-dollarization initiatives. The Fed does not want to become the Bank of Japan that buys 100% of the newly issued Japanese bonds.They want to create external demand for U.S. Treasuries. The Fed’s primary concern is to support the U.S. Treasury; the economy is secondary.

Q1 GDP was actually strong!

The Fed is already tinkering with the poor first quarter results and insisting they weren’t that bad-they just need to be “seasonally adjusted”. There is also talk about making further changes in how GDP should be calculated. The Fed will get their growth even if they have to change the numbers to get it. Once they have their growth they can raise rates.

Housing is Back!

8:47-16:02 Housing has been revived as a driver of the economy as some housing data has risen recently. But it’s the law of small numbers.

new home sales chart

New home sales are stuck at multi-decade low levels.

Yet the media persists in touting a housing recovery!

From Reuters: Solid business spending plans offer ray of hope for factories:

“The upbeat report added to housing starts data in indicating that housing was gaining momentum after treading water for much of last year. Economists believe housing will take the baton from a lethargic manufacturing sector and help to drive economic growth this year.

Housing is being buoyed by a strengthening jobs market, which is encouraging young adults to set up their own households.”

USA Today adds:

Rising rents will drive home buying!

Bloomberg persisits with the bad weather narrative: “The surge in April housing starts sends a clear signal that bad weather was the root cause of weak readings in the first quarter.”

CNBC insists Student loans don’t prohibit home buying!

Fed Claims Impotence in Avoiding Financial Collapse

The Fed only create bubbles, they can’t stop them from bursting!

Fed President Williams recently said: “Despite the clear need to consider all potential tools to avoid a financial crisis, I am unconvinced that monetary policy is one of them.”

The Fed members are Keynesians who believe FISCAL policy (ie government spending) holds the key to economic recovery not monetary policy (Fed action). The Fed wants to pass the baton to Congress to spend money to “fix” the economy.

The Fed Want To Push the Blame for any Collapse on Congress

16:02-21:00 discussion of the Fed’s posturing regarding the state of the economy and what the Fed is responsible for. Discussion of why a small interest rate hike won’t cause a derivatives blow up. The Fed has telegraphed a rate hike for such a long time that traders have had time to adjust their positions. The Fed wants to raise rates no matter what.

Unprofitable Companies with Multi Billion Dollar Market Capitalization

21:00-27:50 discussion of companies whose stock prices go higher as they lose more money. Discussion of the disconnect between the economy and the stock market. The stock market is rising because of companies doing share buybacks in the trillions and central banks buying shares.

What Does “Normalizing Interest Rates Mean?

27:50-32:25 while the Fed will raise rates a small amount, they can never “normalize” them back to 5-6%. The Fed is protecting the Treasury, not the economy. The non farm payroll is discussed and the vast amount of leeway that is possible when the assumptions are made in order to get to the final number. The Bureau of Labor Statistics can’t prove how many jobs were created.

Case Shiller Housing Index – Skewed Towards the Wealthy Cities

32:25-39:15 The case shiller housing index that is heavily weighted to the better performing cities in America is discussed. The cultures and economies of San Francisco are discussed. There are far more cities like Cleveland than San Francisco than are covered by the Case Shiller Index.

The Rising Cost of Living

39:15-48:05 Rising gas and property taxes, lack of wage growth and lower corporate profits are discussed. Part time and minimum wage work and who performs them is discussed. Job expectations of job seekers and Snapchat is discussed. The impact of a Silicon Valley crash might have is discussed. The companies that do the best in Silicon Valley are ones with out assets and profits.

FIFA Soccer Scandal!

48:05 the Department of Justice prosecution of a soccer league but not a major bank is discussed briefly.

The Fed Will Raise Rates

Further Reading

Does the Fed Need to Raise Rates To Combat De-Dollarization Initiatives

List of Foreign Holders of U.S. Treasuries

There Are No Currency Wars

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