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Party While You Can, Central Bank Ready to Pop the ‘Everything’ Bubble

Wednesday, January 10, 2018 8:11
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Headline: Bitcoin & Blockchain Searches Exceed Trump! Blockchain Stocks Are Next!

 

By Brandon Smith  /  Alt-Market.com

Many people do not realize that America is not only entering a new year, but within the next month we will also be entering a new economic era. In early February, Janet Yellen is set to leave the Federal Reserve and be replaced by the new Fed chair nominee, Jerome Powell. Now, to be clear, the Fed chair along with the bank governors do not set central bank policy. Policy for most central banks around the world is dictated in Switzerland by the Bank for International Settlements. Fed chairmen like Janet Yellen are mere mascots implementing policy initiatives as ordered.  This is why we are now seeing supposedly separate central banking institutions around the world acting in unison, first with stimulus, then with fiscal tightening.

However, it is important to note that each new Fed chair does tend to signal a new shift in action for the central bank. For example, Alan Greenspan oversaw the low interest rate easy money phase of the Fed, which created the conditions for the derivatives and credit bubble and subsequent crash in 2008. Ben Bernanke oversaw the stimulus and bailout phase, flooding the markets with massive amounts of fiat and engineering an even larger bubble in stocks, bonds and just about every other asset except perhaps some select commodities. Janet Yellen managed the tapering phase, in which stimulus has been carefully and systematically diminished while still maintaining delusional stock market euphoria.

Now comes the era of Jerome Powell, who will oversee the last stages of fiscal tightening, the reduction of the Fed balance sheet, faster rate increases and the final implosion of the ‘everything’ bubble.

As I warned before Trump won the election in 2016, a Trump presidency would inevitably be followed by economic crisis, and this would be facilitated by the Federal Reserve pulling the plug on fiat life support measures which kept the illusion of recovery going for the past several years. It is important to note that the mainstream media is consistently referring to Jerome Powell as “Trump’s candidate” for the Fed, or “Trump’s pick” (as if the president really has much of a choice in the roster of candidates for the Fed chair). The public is being subtly conditioned to view Powell as if he is an extension of the Trump administration.

This could not be further from the truth. Powell and the Fed are autonomous from government. As Alan Greenspan openly admitted years ago, the Fed does not answer to the government and can act independently without oversight. So, why is the media insisting on misrepresenting Powell as some kind of Trump agent? Because Trump, and by extension all the conservatives that support him, are meant to take the blame when the ‘everything’ bubble vaporizes our financial structure. Jerome Powell is “Trump’s guy” at the Fed; so any actions Powell takes to crush the recovery narrative will also be blamed on the Trump administration.

But, is it a certainty that Powell will put the final nail in the coffin of “economic recovery?” Yes. Last Friday the Fed finally released the transcripts of its monetary policy meetings in 2012, and in those transcripts are some interesting admissions from Powell himself. After reading these transcripts I am fully convinced that Powell is the man who will stand as the figurehead of the central bank during the final phase of U.S. decline.

Here are some of the most astonishing quotes by Powell from those transcripts along with my commentary. These quotes are yet another piece of evidence that vindicates my position on the Fed as an economic saboteur and my position on the historic market bubble the bank has created:

Powell: “I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.

First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated. And we will be able to tell ourselves that market function is not impaired and that inflation expectations are under control. What is to stop us, other than much faster economic growth, which it is probably not in our power to produce?”

Assessment: By all indications the Fed did do more, MUCH more. Including QE3, various stimulus packages and incessantly low interest rates for years, the Fed has essentially stepped in every time stock markets in particular were about to crash back to their natural state of decline. Powell is being rather honest in his estimation here that these stopgaps are in fact temporary and that the Fed cannot produce true economic growth to support the market optimism they have created through their interventions. He is stating openly that markets will only remain optimistic so long as they are assured that the Fed will continue to intervene.

This is probably why it took almost six years before these transcripts were released.

Powell: “When it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position.”

Assessment: And here we have Powell’s shocking admission, clarifying his previous point — the “strong response” that Powell is referring to is a market reversal, or bubble implosion. He even admits the existence of the Fed’s “short position on volatility.” This explains the strange behavior of the VIX index, which has plunged to record lows as “someone” continually shorts VIX stocks in order to interfere with any decline in markets.

This interference in the VIX has conjured an aberration, a market calm and investor confidence that is artificial. Such overconfidence, when optimism turns into mania, has happened before. In fact, the end of the Greenspan era was awash in such exuberance. And this delusion always ends the same way — with crisis.

I would also like to mention here that I have seen some disinformation being planted on Powell’s statements in 2012, asserting that he was “not talking about stock markets” specifically. Obviously he is, as you will see in other parts of his statement, but to reinforce the point, here is a quote from another Fed member who spilled the beans, Richard Fisher:

“What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.

It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow.”

Fisher went on to hint at his very reserved view of the impending danger:

“I was warning my colleagues, Don’t go wobbly if we have a 10 to 20 percent correction at some point… Everybody you talk to… has been warning that these markets are heavily priced.” [In reference to interest rate hikes]

So, what happens when the Fed stops shorting volatility and ends the easy money being pumped into markets? Well, again, I think Powell and Fisher have just told you what will happen, but let’s continue.

Powell: “My third concern — and others have touched on it as well — is the problems of exiting from a near $4 trillion balance sheet. We’ve got a set of principles from June 2011 and have done some work since then, but it just seems to me that we seem to be way too confident that exit can be managed smoothly. Markets can be much more dynamic than we appear to think.

When you turn and say to the market, “I’ve got $1.2 trillion of these things,” it’s not just $20 billion a month — it’s the sight of the whole thing coming. And I think there is a pretty good chance that you could have quite a dynamic response in the market.”

Assessment: The Fed balance sheet is being reduced NOW, and Powell as chairman will only continue the process if not expedite it. Some people may argue that Powell is displaying an attitude that would suggest he is not on board with tightening policies. I disagree. I believe Powell will make the argument that the band-aid must be ripped off and that stock markets need some “tough love”.

In fact, Fed members including Yellen and former member Alan Greenspan (is there such a thing as a “former” member of the Fed?) have already been fielding the notion that stock markets are suffering from “irrational exuberance” and that something must be done to “temper inflation.”

Powell is also acknowledging the mass-psychological aspect of investors, now trained like Pavlovian dogs to salivate over stock tickers instead of thinking critically on the implications of equities that “can’t lose”.  When they finally begin to realize that equities can indeed lose, and that the Fed is going to let them lose, what will the result be, I wonder?

Powell: “I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.”

Assessment: Wow! And there you have it. The new Fed chair’s own prognostications. He even used the dreaded “B” word  bubble. Yes, as I have been arguing for quite some time, the Fed will continue to raise rates and cut off the low cost money supply to banks and corporations that has helped boost stock markets as well as numerous other asset classes.  And now we discover after six years a Fed official, soon to be the Fed chairman, telling you EXACTLY what is about to happen within American markets, reinforcing my long held position.

Powell even mentions that “this is their strategy.” Now, that could be interpreted a few ways, but I continue to hold that the Fed plans to deliberately crash markets and that this will be a controlled demolition of the U.S. economy.

Trump may actually clash with Powell over these measures in the near future, considering Trump has thoroughly taken credit for the insane stock market rally that has dominated since his election. But, this will only add to the fake drama. Imagine, the very man Trump “picked” as the new head of the Federal Reserve undermining the market bubble which Trump boasts about on his Twitter account. The Kabuki theater will be phenomenal.

All the while, the true culprits behind the bubble and the crash, the international financiers and banks, will escape almost all scrutiny as the public mindlessly follows the political soap opera played out in the mainstream media.

If you would like to support the publishing of articles like the one you have just read, visit our donations page here.  We greatly appreciate your patronage.

You can contact Brandon Smith at:

brandon@alt-market.com

With global tensions spiking, thousands of Americans are moving their IRA or 401(k) into an IRA backed by physical gold. Now, thanks to a little-known IRS Tax Law, you can too. Learn how with a free info kit on gold from Birch Gold Group. It reveals how physical precious metals can protect your savings, and how to open a Gold IRA. Click here to get your free Info Kit on Gold.

http://alt-market.com/articles/3346-party-while-you-can-central-bank-ready-to-pop-the-everything-bubble

Read more great articles here: http://alt-market.com

 

 

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Total 9 comments
  • Man

    new month, new economic doom

    • 2QIK4U

      Yes. Even though your jobs have increased and your taxes lowered 60 yrs of Corruption makes it near hopeless. Especially when trump still refuses to release his own tax records because he continues to use his own panama tax free offshore accounts. Which being a businessman is a smart move but being president like Obama did i think is probably illegal. Its always the end of the world in Murica.

  • ElOregonian

    Events of the past are indicators of events in the future.

    The past proves future; future strives for relevance.

    There is nothing new under the sun.

  • raburgeson

    Then we all will work for gold and silver coin, bit coin while the switch is made, or some other alternative. The gold in Fort Knox needs refined so it is pure enough. Yes we know a lot.

    • ItsEverywhere

      There is NO GOLD in Ft Knox.

  • Sucking Chest Wound

    Fiat money is more useless than tissue. With tissue you can blow snot into it and it sucks it up nice. You can take a tissue to the bathroom and it’s soft, comfortable on your botty and you can flush.

    Fiat on the other hand is only on loan. You can never get enough, it’s really worth nothing, it has nasty sharp edges and doesn’t absorb so well.

    Also, you have to wash and dry it before giving it back.

  • beLIEve

    Move Over Fort Knox: Here’s An Actual Look Inside Russia’s Gold Vaults At Their Gold Reserves
    January 10, 2018

    Today Russia’s gold is 17% of world’s gold.

    https://www.silverdoctors.com/gold/gold-news/move-over-fort-knox-heres-an-actual-look-inside-russias-gold-vaults-at-their-gold-reserves/

    • beLIEve

      Russia’s Gold Stacking Isn’t Just About Savings, It’s Also About DEFENSE

      “Russia VIEWS HOLDING GOLD AS part of its NATIONAL DEFENSE system, in that gold works to mitigate against political risks…”

      by Byron King via Daily Reckoning

      It may be a new year, but Russia makes no secret of its long-term dissatisfaction with U.S. politics, the dollar and, by extension, U.S. monetary hegemony in the world.

      Russia has been under U.S./Western economic sanctions for over three years. Meanwhile, oil prices have been “lower for longer,” as the saying goes, due to global competition for market share from U.S. fracking. The overall impact of these phenomena has been costly to the Russian economy.

      Still, Russia has persevered through all manner of external economic roadblocks. The Russian view is sanguine, and that, as time passes, the dollar is in trouble, for a lengthy list of reasons.

      Indeed, Russia’s strategic intent is clear…

      To escape the constraints and political risks of a dollar-denominated world. In fact, Russian leaders are forming a new currency arrangement that will allow them to do exactly that.

      My partner Jim Rickards and I call this new phenomenon Russia’s “fire escape” currency. It’s coming down the line, and smart investors can profit from it.

      First though, you need to understand the Russian view of the dollar.

      At the highest levels of Russian governance, officials are deeply concerned with what they perceive as U.S. political meddling and bullying, based on the dollar.

      Western economic sanctions are part of this. The U.S. and Western partners have blocked all manner of trade in goods and services with Russia, and extended the blockage to many Russian export items as well.

      Plus, Russia chafes under restrictions on transferring funds via the international SWIFT system (Society for Worldwide Interbank Financial Telecommunication). There are many other issues related to the dollar, as well. Far too many to list here.

      But, it’s fair to say that Russian policymakers hold profound distrust and resentment towards how the U.S. has, in their view, abused the status of the dollar as the predominant international reserve currency.

      As far back as 2011, at a major conference in Russia, Vladimir Putin said, “They (USA) are living beyond their means and shifting a part of the weight of their problems to the world economy… They (USA) are living like parasites off the global economy and their monopoly of the dollar.”

      Unsurprisingly, since 2011, Russia has pushed back against dollar-hegemony. Among other things, Russia has accumulated a large amount of gold.

      In fact, in the past six years, Russia has more than doubled its official, publicly-acknowledged, state holdings of gold, as this chart makes clear.

      https://www.silverdoctors.com/headlines/world-news/russias-gold-stacking-isnt-just-about-savings-its-also-about-defense/

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