What fresh horror awaits the world after Fed rate hike?
by Brandon Smith
There is one predominant reality that must be understood before one can grasp the nature of the Federal Reserve and the decisions it makes, and that reality is this: The Fed’s purpose is not to defend or extend American markets or the dollar; the Fed’s job is ultimately to destroy American markets and the dollar. I have been repeating this little fact for years because it seems as though many people simply will not accept the truth, which is why they have trouble comprehending the actions that the Fed initiates.
If you believe the Fed is the sole purveyor of the global economic crisis and is at the top of the internationalist pyramid, then you probably predicted that the privately controlled central bank would “never in a million years” raise interest rates. If you believe that the Fed’s primary goal is to prolong the life span of the “American empire,” again, you probably predicted that the Fed would never raise interest rates. There is a serious normalcy bias when it comes to parts of the alternative economic world and their position on the Federal Reserve. They refuse to acknowledge that the Fed is a deliberately preset time bomb meant to vaporize the U.S. economic system and currency. And as long as this continues, they will never be able to determine what is likely to happen next within our fiscal structure.
There is no way around it: If you cannot grasp the root motivations of the Fed, then you will become cognitively crippled in your struggle to see the next pitfall in the near-term economic future.
In August, I made this prediction concerning the Fed rate hike decision:
The Federal Reserve push for a rate hike will likely be determined before 2015 is over. Talk of a September increase in interest rates may be a ploy, and a last-minute decision to delay could be on the table. This tactic of edge-of-the-seat meetings and surprise delays was used during the QE taper scenario, which threw a lot of analysts off their guard and caused many to believe that a taper would never happen. Well, it did happen, just as a rate hike will happen, only slightly later than mainstream analysts expect.
If a delay occurs, it will be short-lived, triggering a dead cat bounce in stocks, with rates increasing by December as dismal retail sales become undeniable leading into the Christmas season.
I made this prediction (as well as my prediction on the taper in 2013) on the foundation that the Fed is only an appendage of a greater elitist banking machine. The Fed as an institutional idea is expendable, or at least replaceable. The dollar is slated for demolition. And though it may continue on for a time in a more marginalized capacity, the “Fed note” as we know it today will soon be crushed under the weight of what the International Monetary Fund calls the “global economic reset.” In other words, every part of my prediction turned out correct because I accepted the reality that the Fed will invariably take the most destructive policy actions at the worst possible time with the purpose of crisis in mind.
Central bankers also have a tendency to follow patterns. They rarely change strategies on a whim. Most of the decisions we see made by the Fed, the European Central Bank, the Bank of Japan, etc. were likely made months, if not years, in advance and follow the same strategies used during previous crises.
For example, the Fed process of raising interest rates this December followed almost exactly the process they used to introduce the taper of QE3 in 2013: a buildup of rhetoric in mainstream news during the first half of the year and then a fake-out in September, followed by months of uncertainty in markets and then passage of the policy in December. The Fed also has a habit of raising interest rates at the onset of economic instability or right in the middle of a downturn, as it did in 1928-1929, triggering the Great Depression, and in 1931, adding fuel to the fire of financial catastrophe. These particular catalyzing policy actions are partly what Ben Bernanke was referring to on Nov. 8, 2002, in a speech given at “A Conference to Honor Milton Friedman … On the Occasion of His 90th Birthday”:
In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn.
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.
Based on this pattern of policy actions leading to fiscal disaster, I believe alternative analysts can predict with some certainty what is likely to happen now that the Fed has raised rates in the middle of the most pervasive economic contraction since the Great Depression was initiated (as Bernanke admitted) by central bankers. Here are some trends that I believe will become exponential as we move into 2016.
Market turmoil going critical
This might seem like an easy prediction to make; the IMF and the Bank for International Settlements have both been publishing “warnings” on a possible negative financial event if the Fed were to raise rates. I just want to point out first that the Federal Reserve takes its marching orders from the BIS, so the BIS would certainly know if a Fed policy will result in collapse.
Second, market turmoil is guaranteed given the fact that banks and corporations have been utterly reliant on near-zero interest rates and free overnight lending from the Fed. They have been using these no-cost and low-cost loans primarily for stock buybacks, purchasing back their own stocks and reducing the number of shares on the market, thereby artificially elevating the value of the remaining shares and driving up the market as a whole. Now that near-zero lending is over, these banks and corporations will not be able to afford constant overnight borrowing, and the buybacks will cease. Thus, stock markets will crash in the near term.
This process has already begun with increased volatility leading up to and after the Fed rate hike. Watch for far more erratic stock movements (300 to 500 points or more) up and down from now on, with the overall trend leading down into the 15,000-point range for the Dow in the first two quarters of 2016. Extraordinary but short lived positive increases in the markets will occur at times (Christmas and New Year’s tend to result in positive rallies), but shock rallies are just as much a sign of volatility and instability as shock crashes.
It is hard to say how fast and how far markets will drop by the end of 2016. I believe we will see a repeat of the 2008-2009 market chaos, but we are entering into some unknown territory being that the crisis we are experiencing is not a purely deflationary one like the Great Depression. Rather, this is a “stagflationary” collapse with elements of the Great Depression and the Weimar inflationary disaster.
The Fed will continue to hike interest rates
I believe the Fed will continue to hike rates throughout 2016 despite any negative economic signals. It has ignored the global contraction so far and will ignore future events. Why? The Fed is setting the stage for a collapse. Period.
Mainstream analysts claim skepticism over the Fed’s publicly announced “dot plot” schedule of at least four rate hikes in 2016. I am not skeptical. I think they are going for broke and opening the gates to fiscal hell.
But wouldn’t rate hikes result in a stronger and more desirable dollar? Possibly, in the short term. However, many people are unaware that a supposedly “strong” dollar index relative to other national currencies is just as much a death knell for the greenback as a weak dollar index.
Petrodollar status lost
According to the current developments in oil markets, I believe the next major economic trigger event will be the removal of the dollar’s petro-currency status. The “strong” dollar is now driving down prices at a rate that is giving OPEC nations whiplash. Saudi Arabia has already hinted at a depeg from the dollar, as low oil value continues to drive oil producers into debt.
Oil producers have refused to cut production, despite the fact that many nations no longer have storage capacity for excess reserves. Global demand continues to decline, causing a global oil glut so intense that tankers carrying oil are now being forced to sit offshore waiting for space to dump their cargo. Some are even turning around mid-trip and going back to where they came from.
Why have OPEC nations refused to cut production despite these developments? Because they plan to diversify away from the dollar and into a basket of currencies in order to “stabilize” oil prices rather than reduce supply. The icing on the cake is the recent decision by Congress and the Obama administration to allow the removal of the 40-year-old oil export ban within the U.S. With the lifting of the ban, the U.S. now becomes a competitor in the global oil market in the middle of the worst oil glut since the early 1980s. This might not seem like the smartest move to many analysts, but the Fed is not the only institution out to derail the United States. Certain elitists within our own government are also making the worst possible decisions at the worst possible time, and they are doing this quite deliberately.
With the U.S. now entering the market as an oil competitor, I do not see any compelling reason for OPEC nations to continue pegging oil sales to the dollar. With the loss of petrostatus, the dollar will be progressively torn apart. This will lead into the eventual removal of the dollar’s world reserve status, which I have been warning about for years, most recently in my article “The global economic reset has begun.”
I do not see all of these economic developments taking place in an open vacuum. It makes far more sense for them to progress in the background during geopolitical upheaval with terrorism being the main distraction for the general public. I believe 2016 will be labeled the “year of the terrorist,” as ISIS attacks expand to every corner of the U.S. and in numerous EU nations. This “fog of war” is completely necessary to hide the actions of the most dangerous terrorists: international financiers and elites bent on morphing entire global political and financial structures into something more centralized and more sinister.
Other distractions are certainly possible, but there are far too many trigger points around the world at this time to make any kind of prediction as to which ones (if any) will be used. The false East/West paradigm continues and is useful in that it provides a rationale for the eventual dump of the U.S. dollar. Russian and NATO tensions could be used to foment regional wars or even a world war if that is in the cards. I do not see this as the endgame, though.
Economic collapse is the greatest weapon at the disposal of globalists. National panic, riots, looting, starvation, magnified crime: All of these things result in mass die-offs and desperation. Desperation leads to calls for strong leadership, and strong leadership usually results in totalitarianism. It might seem “sensationalist” to tie all of these possible outcomes to the Fed rate hike decision, but give it a little time. Those who make accusations of sensationalism and “fear mongering” today will be asserting tomorrow that such developments were “easily predictable.”