The Fed’s “magic money” game is about over! They try to fool the public into thinking they are sitting in a giant control center, making decisions, punching their keyboards, and controlling the economy. Happy days are here again, today, tomorrow, and forever. Not to worry, the Feds got you covered. Cut the crap!

The Chicago Fed outlines its dual mandate, and what the Fed is supposed to be doing:

“The monetary policy goals of the Federal Reserve are to foster economic conditions that achieve both stable prices and maximum sustainable employment.”

Dual mandate deception

Since the repeal of the Glass-Steagall act, the Fed has clearly revealed its true agenda – contrary to what is published. The Federal Reserve is owned by member (casino)banks, with their major source of income from investments. Their behavior has been to bail out the banking system while fostering bank profits. The banks are a cartel, keeping their profits while taxpayers backstop their losses.

Congress ignores its job of overseeing the Fed.

Why? The Fed allows congress to spend trillions without raising taxes to cover the excessive spending. That buys votes. The Fed creates money out of thin air and holds trillions of government debt on its books.

The consequences of bank bailouts and corrupt politicians are coming home to roost, and it’s not pretty.

The dual mandate is window dressing and contradictory. For the Fed to promote full employment, they have one tool; make the cost of money cheap to encourage borrowing, spending, and hopefully economic growth. Flooding the system with money causes inflation.

Pundit Bill Bonner reports:

“In a healthy economy, people barely notice the Fed. Its manipulations are slight. Its errors are small. It stays out of the way.

That’s the way it was until the 1990s when Alan Greenspan began backstopping Wall Street. Later, after the mortgage crisis of 2008, the Fed intervened on a scale never before seen in the US. Interest rates were pushed down to near-zero…and left there for more than 10 years. In a single month in 2020, the Fed added more new money than had been ‘printed’ in the preceding 100 years. And now, the whole economy has an almost insatiable appetite for more credit from the Fed.

It’s a monster. Either inflate it. Or kill it.”

Inflation is killing the consumer. The Fed is raising rates trying to calm inflation. Despite government claims, they have a long way to go. If they continue increasing interest rates it will do the trick; at the expense of slowing the economy, costing people jobs, etc.

When the July inflation numbers were announced, President Biden proclaimed:

“I just want to say a number: zero. Today, we received news that our economy had zero percent inflation in the month of July – zero percent! Here’s what that means: while the price of some things go up – went up last month, the price of other things went down by the same amount. The result? Zero inflation last month.”

The Epoch Times reports:

“Grocery Inflation Hits Highest Level in 43 Years Despite Biden’s ‘Zero’ Inflation Messaging.

While the annual pace of inflation in the United States eased slightly in July, a deeper dive into the numbers reveals that some of the categories that hit every day Americans especially hard in the pocketbook have soared, with the price of groceries jumping to the highest level since 1979.

…. The food-at-home index, which represents food purchased in places like grocery stores for consumption at home, jumped by an annual 13.1 percent, which is the fastest pace since March 1979.

‘Consumers are getting a break at the gas pump, but not at the grocery store,’ Bankrate Chief Financial Analyst Greg McBride told The Epoch Times in an emailed statement. ‘Food prices, and especially costs for food at home, continue to soar, rising at the fastest pace in more than 43 years.'”

Politicians never change

As always, the political class attempts to mislead the public:

“Republicans and some economists objected to the White House messaging on “zero” inflation by arguing that Biden was cherry picking the data by focusing on the 0 percent month-over-month pace of growth, while overlooking that the year-over-year rate of inflation-which tends to be the more commonly reported figure-remained at an eye-watering 8.5 percent.

It’s a bogus math trick.”

I have a real disdain for both political parties. Please save the hate mail. If Republicans were in power, they would be hailing victory while the democrats cry foul – that’s what politicians do.

Don’t get caught up in the “zero” inflation crap. If you have $1 million, and inflation is 8.5%, you lose $85,000 in buying power in a year. That averages $7,083.33 per month. The government touts “zero” inflation month over month and we should rejoice? We should rejoice because government-caused inflation only robbed us at the same rate they did last month.
 

The Fed’s dilemma

Bill Bonner explains things:

“This puts the Fed in a tight spot. It’s ‘inflate or die.’

It can’t ‘inflate’ because it would risk runaway inflation. (Gasoline, for example. Even after the price decline of the last month, it is still 50% higher than it was last year. Producer prices “in the pipeline” are still going up at nearly 10% per year.)

Since it can’t inflate, the bubble must die. And the Fed is puncturing it, with tiny daggers…50-75 basis points each. The Fed Funds rate is still about 600 basis points (6%) below the CPI (now 8.5%). It needs to get ahead of inflation…not tarry 600 basis points behind. Otherwise, it has no rates to cut in the face of a recession.

And if it stops raising rates, or even reverses course as the recession deepens, consumer prices will go up…and the whole system risks going into an Argentine-like chaos.”

What is “Argentine-like chaos?” Reuters tells us:

“BUENOS AIRES, Aug 11 (Reuters) – Argentina’s central bank raised its benchmark interest rate by 950 basis points on Thursday as the country struggles to keep a lid on spiraling inflation that rose to a 20-year high of 71%, according to new data.

The central bank raised the benchmark ‘Leliq’ rate for the 28-day term to 69.5% from 60%, a rate the bank set just two weeks ago when it hiked the rate by 800 basis points and the government shuffled its Cabinet to install a new economy “superminister.”

Don’t you just love politicians? Adding a “superminister” to the cabinet is like rearranging the deck chairs on the Titanic. Cutting government spending and reigning in the banks would be a more appropriate place to start.
 

The Fed’s problem is OUR problem

So, the government and Fed will now solve the huge problem they created? Show me!

The Federal Reserve must raise interest rates higher than the inflation rate. Congress must reinstate the Glass-Steagall, balance the budget, institute congressional term limits, and abolish the Fed. Not happening yet….

Instead of any reasonable effort to reduce the annual budget deficits, congress passed a $745 billion “inflation reduction act”. It is the exact opposite of the title. The bill is full of pork, political payoffs, and more wasteful spending, adding to the deficit and increasing inflation.

Things were economically painful when Paul Volcker raised interest rates as high as 20%. In a few short years, inflation was under control and the economy turned around.
 

Don’t be deceived

Friend Chuck Butler recently warned:

“You can have what’s called a “Bear Market Rally,” a slight upswing before it continues down. Historically most all Bear Markets had a “Bear Market Rally.”

Here is what a “Bear Market Rally” looks like. This chart tracks the Dow Jones averages from 1928-1956.

In 1929, the market peaked at around $360, then dropped to around $228. Then it jumped 22% to $278. Happy Days were NOT here again. Over the next two years, it dropped to $48 – a 65% drop. It took 25 years to return to the previous high.

Chuck and I fear the Fed will eventually cave to political pressure and reverse the process, creating more inflation.

Economist John Mauldin predicts:

“Fed officials know they can’t let inflation get out of control. But they also want to see a “soft landing” for the economy. I see high risk, they will take some kind of “pause” in the rate hikes later this year. They’ll say they want to reevaluate data, blah, blah, blah.

…. The government and the Federal Reserve’s policy errors created the current situation. I see many more opportunities for policy error in the future, with potential results ranging from bad to calamitous.

But these things unfold slowly. We could easily get a few good months that lull everyone to sleep. If so, we may wake up to a nightmare.”

I’m sure traders really got hurt during the Great Depression, trying to time the market and jumping back in during the Bear Market Rally.

When the Fed takes a pause, many will assume things are fixed. Don’t get fooled. Waiting things out may cost a few dollars, but jumping back in too early, could be a real calamity.

Keep your stop losses up to date, your emotions in check, and your expenses under control. We will survive!
 

On The Lighter Side

Grandson Braidyn is a high school senior. We watched him play football last week. It has been years since we watched high school football.

It reminded me that Friday night football is very much an American tradition, with cheerleaders, a student cheering section, parents, grandparents, and local fans. It was neat seeing much of the crowd wearing apparel supporting their local team. When we get back to IN, we may have to invest in a hat or shirt.

Friday night football normally is a standing-room-only crowd. Daughter Holly said the crowd was bigger than last year (attendance was Covid limited). They hope to see the stadium filled once again soon.

Braidyn’s team won, which was fun. I’ll admit a 155lb fearless high school football player concerns me; he was playing against some big boys.
 

Quote of the Week…

“If I were asked to give what I consider the single most useful bit of advice for all humanity, it would be this: Expect trouble as an inevitable part of life and, when it comes, hold your head high, look it squarely in the eye and say, ‘I will be bigger than you. You cannot defeat me’.”

— Ann Landers

And finally…

Friend Tom G. sends along some interesting philosophy:

• The pharmacist asked me my birth date again today. I’m pretty sure she’s going to get me something.

• My therapist said that my narcissism causes me to misread social situations. I’m pretty sure she was hitting on me.

• I find it ironic that the colors red, white, and blue stand for freedom until they are flashing behind you.

• I want to die peacefully in my sleep, like my grandfather. Not screaming and yelling like the passengers in his car.

• Did you know that dolphins are so smart that within a few weeks of captivity, they can train people to stand on the very edge of the pool and throw them fish?

And my favorite:

• Money talks…but all mine ever says is goodbye.

Until next time…

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