E Future Interest Rates, Financial Markets, And The Fed

"Don’t fight the Fed" is a long-established, oft-confirmed market proverb. The Fed is indeed an incredibly powerful institution; in fact, it is perhaps the most powerful entity on the planet. It is arguably more powerful than our combined air, sea, and land military forces. These forces can reduce individual military targets to dust, they can flatten cities or even small countries killing thousands of people, but still it is no competition to the Fed! The Fed with its power over interest rates and money creation, its expansion or contraction, its Petrodollar and global trading currency, its open market operations, and its foreign currency exchange markets can destroy the value of foreign currencies, and start revolutions. It can injure or even destroy economies of single countries or even whole regions of the developing world, in turn crippling the lives of tens or even hundreds millions of people. It can finance wars, determining who will be victorious.

Reflect first on the last ten year period - after the near global meltdown of our financial markets in 2008.The direct and determined intervention of the Fed reducing interest rates to historical lows for nearly a decade and creation of trillions of new dollars caused the stock market to rise fourfold from its nadir in 2008 to its high in 2018.  By creating trillions of new dollars, it saved the global banking system from collapse. With its influence over foreign exchange markets, it has maintained U.S. dollar hegemony even as it crashed currencies and economies of countries it sees as strong competitors or unacceptable owners of vast natural resources which our elite globalists want to control, weaken or punish. That is the power of the Fed.

Historical Fed prowess

Economic history shows that the US was able to participate in WWI because the then recently formed Fed created dollars by which we could financially “afford” to participate in that wholly European war. In his book “End the Fed” author Ron Paul states:

“the United States might have stayed out of the conflict. But having the Fed, the United States entered the conflict in 1917.  There were … new bonds to float, and a massive expansion of government debt that was backed by the power of the Fed to create money to pay back the debt."

After WWI the Fed’s further expansion of money promoted low interest rates which created the stock market of the Roaring Twenties. Its decision to raise interest rates in the late 1920s caused the Great Depression. The Fed also had the power to sideline real gold-backed money, drive gold out of public circulation in the 1930s, and replace it with a system it could more readily manage or manipulate. 

The Fed also facilitated “paying” for our participation in WWII, by distributing record volumes of Treasury bond issues through its banking system, thereby allocating war cost to every citizen. As England and other countries purchased war materials from the United States with payment in gold, it accumulated the greatest hoard of gold ever amassed in the history of the world. It then created a new global monetary system based on the dollar which was to be “as good as gold”.But a scant twenty five years later it was obvious to most countries that the dollar was not as good as gold, and the United States had to close their gold exchange window in 1971 to protect its diminishing gold stock from being lost to foreign countries seeking to exchange their dollars for gold. 

That decision, which was a currency default for America, stole billions from foreign countries accumulating dollars. Gold rose from $35 an ounce to $1230 at present, while the paper dollar’s purchasing value has dropped to just sixteen cents.The then Secretary of the Treasury Mike Connolly brashly pronounced that “the dollar is our currency, but it’s your problem”.With the strongest military power in the world backing the Fed, it easily prevailed and convinced a still recovering Europe and the rest of the world to use the “new” gold un-backed dollar as there were no alternatives. 

What followed in the 1970s was a period of massive new money printing and credit expansion, which caused a decade of accelerating inflation, market decline, and economic retrenchment. A new Fed chairman, Paul Volcker, was appointed to stem ravaging inflation, with the result that in 1981 interest rates rose to their highest rate in the century.The Fed subsequent resolute action caused interest rates to decline for the next three decades.

Despite the closing of the gold exchange window in 1971, and purchasing power of a dollar declining to just $0.16 today - countries still buy and hold vast amounts of U.S. Treasury debt, and the dollar is still the global trade currency.Both China and Japan hold over $1 trillion of Treasury securities, as the global banking system holds approximately $7 trillion in their bank reserve accounts.This speaks volumes about the real power of the Fed.

Over decades its policies have changed the very structure of the American family, its workforce, its attitude towards savings, and caused a debt enslavement of its citizens. In effect its power has been so limitless that it has changed the very culture of this nation. (See: America’s One-sided Domestic Financial War).

Interest rates

FRED (Federal Reserve Economic Data) available on the internet shows changes in historical interest rates.Here we summarize historical sweeping movements of longer term interest rates in the following brief table.

             Time period         Number of Years       Overall movement                    

              1869 - 1900                    31                           8.1% - 3.7%

              1900 - 1920                    20                           3.7% - 7.2%

              1920 - 1946                    26                           7.2% - 2.1%

              1946 - 1981                    35                           2.1% -14.1%

              1981 - 2012                    31                         14.1% -  2.1%

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and ...

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William K. 3 months ago Member's comment

This article does seem to paint a rather grim picture. But that is not likely to matter much when the next Coronal Mass Ejection from the sun occurs, after which our power grid will be failed and almost all electronic devices damaged to inoperability. At that point it will be those who have elected to be prepared with the skills to survive who will be able to sustain.And all of that cash will be very useful, as kindling for cooking fires.