Will the Fed Raise Interest Rates?

The Fed has been talking about ending QE and raising interest rates since 2009.

Can the economy withstand an interest rate hike?

How To Buy Gold.

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How to Buy Silver.

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The Fed has been threatening to raise rates for more than half a decade.

Lower rates have not boosted existing home sales, new home sales and have failed to ignite housing starts and permits.

What impact would higher interest rates have on the housing market and the economy?

Podcast Summary:

Intro: 0:00-4:21

The Federal Reserves’ Intention to Raise Interest Rates

4:21-6:40 Discussion of the Fed’s stated intention of raising interest rates- a statement that has been repeated many times since 2009, but has not happened.

In 2009, then Fed Chairman Ben Bernanke laid out the road map as to WHEN quantitative easing (QE) would end, interest rates would be raised and the Fed would unwind its balance sheet:

While doing a few rounds of multi trillion dollar quantitative easing programs, former Fed Chairman Ben Bernanke determined that, despite constantly referring to a “recovery”, the economy was too weak to raise rates during his tenure.

Mr. Bernanke claimed that the economy was weak in 2012. In 2013, Bernanke said the economy was weak and added that it would “tank” if rates were raised.

Patience!

Current Fed President Janet Yellen takes a different tact – she has been claiming all throughout 2014 that the economy IS better and it’s just a matter of “considerable time” until the Fed raises rates. The Fed can not raise rates because it would crash the asset bubbles in the stock and real estate markets and raise the cost of U.S. deficit spending. The Fed can’t raise rates because other central banks have low or negative interest rates and are also monetizing or considering monetizing their sovereign debts and other stimulus measures. Rates in the U.S. have remained low in spite of the cessation of QE.

Deflation is Good – if it’s declining Oil Prices

6:40 – Discussion of the Yellen exception for deflation. Lower prices stimulate demand!

The Fed’s Six Year Interest Rate Rise Bluff

7:25 – 12:55 discussion of Bernanke’ and Yellen’s excuses not to raise rates (“considerable period of time”). The Fed produces nothing but they control the cost of money that controls the entire economy-they only manipulate.
The markets, however, move often more on Fed statements than company news and earnings. The markets follow the Fed statements and their interpretation of events, often against common sense.

The Public and Market Lack of Attention Span

12:55-15: Discussion of the public and market’s attention based on news stories and Fed statements. All news is fleeting and subject to change. Ex. The Fed prints $4 trillion to fight deflation and when deflation appears in the form of lower oil prices, the Fed declares it a good thing. If the economy is doing so well, why is the Fed waiting to raise rates?

The Fed, Not Market Forces, Drive Prices

15:22-16:35 Market forces of supply and demand do not control where the markets go, rather it’s Fed policy, intervention and statements that determine their direction. (with help from Bloomberg, AP, Reuters and CNBC)

CNBC Headline: U.S. housing starts, permits fall; trend points to recovery

16:35-19:00 CNBC headline above is discussed. Mortgage rates are lower than last year and there is supposed GDP and job growth since last year, YET housing starts, permits and sales are not up. The media spins this dynamic as a “recovery”.

Fannie Mae and Freddie Mac Introduce New 3% Down Program

19:00 -32:20 If the economy labor and job markets are “recovering” why would there need to be a new 3% down government guaranteed mortgage program to stimulate housing demand?

Market soars because Fed WONT do what they've threatened for six years-to end accommodative policy and shrink their balance sheet

— Smaulgld (@Smaulgld) December 17, 2014

Real estate market pundits are predicting that 2015 is the year that millennials will emerge from their parents’ basements to buy homes and some are predicting that pre adolescents will drive the real estate market.

Lower gas prices do not offset higher food, insurance costs and loss of wages or a job. Lower gas prices are probably temporary and do not provide enough savings to allow people to buy homes.

Pending applications will rise as a result of the new Freddie Mac Fannie Mae program so the media can tout “strength in the housing market” even though many of the applications will be denied.

The New Economics

32:20-35:15 Forget prior Fed statements and focus on new ones. What the Fed inserts or deletes in its statement is important in determining the out look for the economy. The Fed claims their actions are “data driven and they can drive that data off any cliff they want if they don’t want to raise rates. “Unexpected” “market drop” “housing decline” “deflation” are among the many excuses the Fed can give not to raise rates in 2015.

QE4?

35:15-37:25 the prospect of QE4 is discussed and when it might be implemented depending on 1st and 2nd quarter GDP readings, dollar strength and ECB QE plans.

Republicans or Democrats – Who Owns the Economy in 2016?

37:25-44:40 discussion of who owns the economy for better or worse in the 2016 elections.

The Fed controls the price of money and its supply which makes them in control of the economy and markets. They don’t need to own any productive capacity, just the money supply. Supply and demand dynamics do not factor in to prices. (see gold and silver markets).

The Fed has managed to allow the economy to continue to create credit. There is no limit to the amount of debt that can be created. What the Fed is fighting is the ending of the creation of new credit as that would lead to a crash and liquidation of the debt.

Debt Forgiveness on Short Sales

44:40-46:33 debt forgiveness on short sales is discussed.

Gold and Silver Manipulation and QE

46:33-50:25 discussion of gold and silver price manipulation and when the naked short selling began in earnest at the start of QE3. The Fed was the most reckless central bank on the planet and all has been forgotten and the dollar is treated as a stable currency under the prudent stewardship of the Fed! The Fed has done QE before and will do it again. People’s attention span is limited to what the Fed is doing now (supposedly no QE) and what they are talking about doing (raising rates) forgetting that for 6 years they kept rates artificially low and printed more dollars than ever in history.

The Structure of the U.S. Economy

50:25-54:55 the US economy has gone from productive/industrial to financial products driven. The banks make the profits and the companies that can make profits for the banks like the stocks that don’t produce profits but produce IPO and banking fees for the banks and venture capitalist are the ones that are becoming the most valuable companies. Profits are always for tomorrow or next year. People have become convinced that tangible assets and profits are outdated.

Why Aren’t Russians Flocking to Bitcoin In Light of the Rouble Collapse

54:55- Bitcoin proponents believe that nothing is better than something. Russian are buying cigarettes and vodka instead of bitcoin. Comparison of the Internet stock bubble and today’s stock bubble. At least during the internet stock bubble of the late 1990’s and early 2000’s there was some productive efficiencies being created to try and justify the loft stock valuations. Today there is none of that and arguably the more valuable companies today are counterproductive like Facebook where people spend time at work not working but using Facebook.

Will the Fed Ever Raise Rates?