The Federal Reserve is intentionally blowing it up

Yes, the only conclusion I can make is that the Federal Reserve is effectively restricting credit at the worst time on purpose to blow it all up. Let me explain.

The Federal Reserve employs hundreds of economists who come from the finest schools. These economists win Nobel prizes and receive the best jobs in the industry. These economists are also well regarded professors at the top universities. Yet, the Fed seems to be so willfully ignorant with its obsession over subduing the very inflation it helped cause that it is completely destroying the fiscal mechanisms of Federal government spending.

QE turned the Federal government into a crack addict

Believe me on this one, the Federal Reserve is not being stupid. It is carrying out its instructions to blow it all up.

The Fed is absolutely laying it all waste by leaving interest rates persistently elevated above official rates of inflation while they continue to roll off existing Treasury inventory from its balance sheet. The rest of the world cannot replace the Fed’s former  Treasury demand. If it could, long-term bond yields wouldn’t be continuing to creep higher.

How stupid can the Fed be? In another couple years, the Federal government interest expenses will hit $1.5 trillion annually.

Since 2008, the Fed worked with the Federal government to turn the US fiscal engineers into spending crack addicts, while the Federal Reserve was dispensing what the Federal government thought was free crack.

But the Federal Reserve is now hassling its addicted customer and raising its prices.

The Fed didn’t seem to care during the Biden regime

Without showing any concern, the Federal Reserve was dispensing credit fast and furiously to the Biden regime, which only created the current cycle of inflation over the past several years.

For months during the early part of 2020, I was warning the readers to get ready for a massive wave of asset price inflation, regardless of how the economy performed because of covid. I especially was concerned about the potential for a massive escalation in stock and house prices.

But the FED didn’t seem to care.

I have a masters in Economics and my educational background and experience is nothing compared to that of the economic geniuses that take up space at the Fed. Yet, they didn’t question what the ramifications would be from such a massive wave of fiscal deficit spending.

Then the Fed let it all boil for two years longer than it should have. By the time the Federal Reserve finally responded to its supposed underestimation of the transitory inflation with massive increases in short-term rates and its sharp reversal in its Treasury and mortgage buying, it was too late. Things got out of control and now we have the problems we have today.

The FED is now concerned at the wrong time

Where was the collective common sense of these PhD Fed economists between 2020 and 2023? They’re not that stupid.

And guess what, Trump and the Republicans are going to get the blame.

The Federal government can no longer finance itself, because its interest expenses are now too high and climbing, and this is sucking too much of the world’s savings to service its debt.

Essentially, the Federal Reserve got the Federal government hooked on QE like a crack addict back in 2008 and now the Powell administration has been actively pulling the rug out from underneath the Federal government since Trump got elected.

The FED needs to do a u-turn immediately

Forget targeting inflation or whatever stupid reason the Fed contemplates. That ship has sailed; QE must continue.

The Fed needs to step back into the market and start buying Treasury debt immediately and it needs to commence lowering interest rates now. That’s the only answer. There is no other alternative, lest we see a blow up in the government’s finances.

This is all too obvious for it to be a mistake. When it all blows up, it will be blamed on nationalism.

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This from Bloomberg this evening….

Congressional Republicans risk “fiscal disaster” if a recession hits as they push through sweeping tax cuts, Guggenheim Securities Co-Chair Jim Millstein warned. “What today is 6.4% of GDP as a deficit, a $2.4 trillion deficit, could easily expand to $4 trillion if we had a recession,” Millstein said in an interview on Bloomberg Television. The cost estimates of the current GOP package “assume consistent economic growth. So imagine we have a recession. In the last five or six recessions, the budget deficit actually blows out because tax revenues go down and spending increases.”

A key House committee advanced President Donald Trump’s giant tax and spending bill over the weekend. The Joint Committee on Taxation had pegged the total cost of the bill at $3.8 trillion over the next decade, though an analysis by the Committee for a Responsible Federal Budget says the outcome will be more dire. Long term Treasury yields have been rising this month in the wake of investor fiscal concern. Yields on the 30-year bond breached 5% Monday in the aftermath of Moody’s announcement Friday that it was joining other ratings agencies in downgrading US sovereign debt to Aa1 from Aaa.

Millstein recalled how in the 1990s it took the bond market pushing yields sharply higher to persuade politicians to bring the deficit down. He said it may be worth happening again, “because there really is no check on them right now.”