The Danger Of The Fed's Tall Tales

Interest rates are not a function of whether the U.S. adds a bunch of jobs in some given month. And to the degree that they were ever about what number U.S. GDP hangs on the scoreboard, that’s no longer true. Now, they’re about the knock-on effects that higher rates will have here at home and abroad.

Here at home, higher rates will undermine the economy because of all the debt we have at the federal and consumer levels. (And I will come back to you next week to explain just how weak the U.S. consumer really is.)

Abroad, higher rates would rip through the massive mound of dollar-denominated debt spread across emerging markets and lead to a currency crisis, likely in Southeast Asia.

The One Safeguard Against Financial Destruction

And so it is, then, that gold is higher and the dollar weaker in the wake of this latest anvil crushing the coyote’s skull. It’s the market’s reaction to the glacially dawning realization that the 800 words you just read depict the correct analysis. It’s not a popular analysis. It’s not an off-the-cuff, ad hoc analysis based on the latest data point, given that I have been consistently delivering this same message for several years now.

It’s simply the way it is.

Worse, it’s the way it will remain — an anemic, choppy economy and a Fed incapable of normalizing interest rates — until Western governments, led by the U.S., reset the financial system.

And that is going to be an excruciatingly painful process for which you will want a heaping helping of gold in your portfolio to counterbalance the financial destruction that is necessary when very large dislocations are corrected.

Until next time, good trading…
Jeff D. Opdyke

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As a lifelong world traveler, Jeff ...

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