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Government Watch / Politics

Is the Fed Trying to Kill the Trump Economy?

economy-fed-trumpWilliam McChesney Martin, the ninth and longest running Chairman of the Federal Reserve, said “The Federal Reserve … is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.” Rudi Dornbusch, the German economist who worked for most of his career in the United States, was more blunt: “None of the U.S. [economic] expansions of the past 40 years died in bed of old age; every one was murdered by the Federal Reserve.”

Is the sharp selloff in stocks following the sharp rise in interest rates last week signaling the death throes of the longest-running bull market in history, to be followed by similar expiration of the 112-month long economic expansion? On Tuesday, October 2, the key financial instrument followed by most observers — the U.S. 10 Year Treasury Note — was yielding 3.06 percent, just slightly above its yield over the previous couple of weeks. Three days later, the yield had jumped to 3.26 percent, triggering the selloff in stocks. The day after the Treasury note bottomed, the Dow Jones Industrial Average (DJIA) was closing in on 27,000. By Friday, October 5, it had lost 500 points. The decline picked up where it left off on Monday, and by Thursday last week, it was down 1,700 points.

Is this the beginning of the end? Is this the death knell for stocks and bonds, administered by the Fed in the name of taming “inflation?” As Investor’s Business Daily (IBD) editorialized, investors in stocks and bonds “knew that the growth-averse Fed will now almost certainly raise rates in December. Before [the sudden avalanche of good news about the economy] it was only considered a possibility.”

Fed Chairman Jerome Powell is being less than forthright about raising interest rates. The Fed has been slowly pressuring the bond market in its program of selling off its vast horde of maturing U.S. securities, forcing the bond market to absorb more than $170 billion of them in just the last year. The market, in adjusting to this new supply, raises interest rates to compensate (i.e., when the supply of something increases, demand decreases). While investors have been focusing on Powell’s remarks, many failed to look behind the curtain at how his bank was already setting the stage for the rise in interest rates that only became obvious last week.

Whether he intends to kill the economy or just throttle it down remains uncertain. What isn’t uncertain is his timing: Just a month before the midterms, the economy which should redound to Republicans’ benefit is now being questioned. The headlines are delivering the message that Powell wants delivered: “Is the Stock Market Going to Crash?” asked Mark Skousen. “Here’s Why the Stock Market is Dropping — and What You Should Do About It Now” shouts Money Magazine. “Stocks are Sliding: Here’s How to Protect Your Portfolio From a Crash, According to Experts” provided by MoneyForbes screamed: “Why Stock Markets Crash” while Fortune magazine explored the rubble from the bursting bubble: “The Stock Market Cleaned Out Billionaires in the Past Week: Here’s Who Lost the Most.”

Commentators rolled out the usual culprits for the selloff: trade “tensions” with China, rising oil and gas prices, slowing global growth, and so on. But in order to stop the economy there have to be fundamental reasons, not just frothy headlines. Is growth slowing? Is unemployment climbing? Are earnings declining? Patrick Kaser, managing director and portfolio manager at Brandywine Global, got it right: “All the leading indicators that would point to a recession in the next year just aren’t there.”

So, why are interest rates rising? Give credit to economics professor Dr. Stephen Kirchner at the University of Sydney to explain how the free market works, if it is allowed to: “Rising real [inflation-adjusted] interest rates are not a surprise given the current strength of the US economy. What is surprising [to Keynesians] is the lack of inflationary pressure flowing from that strength.” Translation: Interest rates are the price of money, and when the demand for money — for investment purposes, for bonuses, for salary increases, or for increased contributions to pension plans for employees — increases, so do interest rates. As the demand for money grows, the price of money increases. Said Kirchner: “All the [upward] movement has been in real interest rates, with the US 10-year yield adjusted for inflation rising above 1.00% for the first time since 2011.”

To confirm the Fed’s fraudulent claim that it’s working to “tame inflation” came the August PCE (personal consumption expenditure) rate that the Fed claims drives its decisions. The PCE for August was  — wait for it — 1.3 percent annualized. And when the volatile food and energy prices were excluded, PCE inflation for August was 0.4 percent!

The Fed has the power to murder. It also has the power to deceive. As The New American has reported, there are some clouds forming on the economic horizon, but none of them are sufficient to rain on Trump’s economic parade. Only the Fed can do that.

Reprinted with permission from The New American - by Bob Adelmann

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PaulE

Rudi Dornbusch, the German economist who worked for most of his career in the United States, was indeed correct in his assessment. The Federal Reserve generally can not tell the difference between wage inflation caused by sustained and healthy economic growth and inflation brought about by artificial manipulation of the money supply and short-term interest rates. To the Federal Reserve both are equally bad, even though only the latter creates negative economic consequences and is what the Federal Reserve directly controls and constantly manipulates to try and achieve what they deem a “neutral interest rate environment”. The 8 years under Obama where the Federal Reserve held interest rates well below normal market levels had the intended, yes I said intended as the Federal Reserve understood the consequence of their actions, driving up the value of all sorts of commodities and suppressing economic growth in several major areas of the United… Read more »

Army Vet

The Fed has been a detriment to the U.S. economy since its inception, keeping America on a steady path from one recession to another, wreaking more havoc on the American taxpayer than WWII. It is time to get rid of this instrument of ruin that is unaccountable to Congress, the President, and the American people.

Kim

Last week’s blip in the stock market can hardly be seen as a “CRASH!” when compared to 1987 or 2008, when the markets dropped by a much higher percentage. I would not have thought that the Fed would play with rates based on who sits in the White House, until now. And if that’s what happened…oh, my!

With businesses growing, hiring, and showing more profits, and with the relatively low inflation we’ve had during this expansion, I decided to invest some money that was on the sidelines. When the economy is doing this well, a small dip is a buying opportunity.

MegP

I believe the Saudi situation is a contrived by enemies to Saudi, USA and Trump to stop the economic growth in both Saudi and USA. The Saudis themselves may have encouraged this type of behavior, but Both Saudi and USA have plenty of enemies in that area and elsewhere. Hope all this can be exposed, contained and solved so it will not have much effect on either Saudi or US economy.

Barbara S.

I believe the average informed middle and upper class citizen is more in touch than the Fed is as to the happenings on the ground….these people whoever they are seem to have one road they travel and must keep changing/adjusting course to keep the Fed Reserve within their line of thinking…totally out of touch with whats happening in America and maybe this is their biased end game…..to ruin what a good economy has created….

Drue

This is just a way for the Fed to torpedo President Trump’s attempt to regain economic stability and prosperity to our country. Make no mistake, Obama, Soros and many far-left Democrats are behind this move.

Thomas H

Another one of my predictions fulfilled – that the “apolitical” Federal Reserve, which had no trouble keeping interest rates near 0% to help ObeyMe, will suddenly hike the rate several times to try to make the deficit unpayable (hoping to bring about an economic collapse under Trump). The second part of the prediction (that the “unbiased” media will start talking about a coming economic catastrophe under Trump) is coming true as we speak. Predicting democRats is just too easy!

Paul W

No entity with this kind of tremendous control over the U.S. economy should exist without any oversight at all. They should be audited…and then eliminated,

Jaye

I still think what the Federal Reserve needs is to be audited.

MegP

Glade you are saying it out loud.

Larry Pierson

Can the fed be charged with treason? We need a strong economy to rebuild our military after it was decimated by Obama. Cratering the economy provides aid and comfort to our enemies.

Papa Coach

Seems to me that the banks are going to reap the benefits of higher interest rates. So could it be possible that the folks making decisions about increased interest rates might be putting extra cash in their pockets courtesy of the big banks?

TomB

As President Trump continues his attempts to fulfill promises, the extent of our government’s underlying corruption is slowly being exposed. The establishment’s Deep State appears a lot deeper than anyone thought and the FED is a definite and important factor. Personnel appointed by the President (Sessions, Wray, Powell, etc.) have seemingly evolved into deep state players after taking office, almost in defiance of the administration’s agenda. The power of our congressional representatives has diminished to a level where a request to testify and congressional subpoenas are all but ignored. And without serious consequence, Democrats, who can’t seem to focus of a discussion of ideas, have resorted to running all over the Country assaulting, disrupting, damaging property, as would be expected from bands of juvenile delinquents. Thomas Jefferson said … “When the government fears the people there is liberty; when the people fear the government there is tyranny”. And currently, our… Read more »

Mickey

Eliminate the fed with the other swamp creations

Alan

Is William McChesney Martin a Democrat? Just a thought.

Poque Mahoney

I believe the FED is doing the right thing. Super low interest rates just encourage profligate borrowing and spending. It’s about time that savers
got a break with decent interest rates. We really don’t need our government to be able to get easy money and start another giant borrowing spree.