Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AMD Ryzen 4900x / 5900x and 4950x / 5950x Zen3 4th Gen IPC and Clock Speed and Core Specs - 14th Aug 20
Stock Market Gap Fills Suggests Market Momentum May Stall - 14th Aug 20
Silver May Be Overextended – But It’s STILL Cheap - 14th Aug 20
A Short Guide To Making Your First Stock Market Investment - 14th Aug 20
Is Tech Reality Affects our Dating Possibilities? - 14th Aug 20
Will You Make Money in the New Silver Bull Market ? - 13th Aug 20
Hyper-Deflation Capital Destruction And Gold & Silver - 13th Aug 20
Stock Market Correction Approaching - 13th Aug 20
Silver Took the Stairs to $21 in 2008, Took Escalator to $29 2010. Is Silver on Elevator to 120th floor today? - 13th Aug 20
President Trump Signs Additional COVID Relief – What To Expect from the Markets - 13th Aug 20
Has Gold's Upward Drive Come to an End? - 13th Aug 20
YouTuber Ads Revenue & How to Start a Career on YouTube - 13th Aug 20
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think

Interest-Rates / US Federal Reserve Bank Nov 07, 2019 - 12:24 PM GMT

By: Kelsey_Williams

Interest-Rates

Did you ever watch a dog get caught up in the act of chasing its own tail? It continues to run in a circle as the object of its fascination and intention continues to elude it. The action is quite comical, almost hilarious.

The expectations of the animal are both foolish and amusing. You might feel inclined to want to communicate the unrealistic expectations to the engaged participant, but you know your efforts would be in vain.


Fed’s 2% Inflation Target Is Pointless

“…if an inflation target is justified, why 2%?  Why not a lower number? Or any other number? In truth, it probably doesn’t make any difference. From the Fed’s perspective, it gives them a license to openly discharge their firearms in the public square. If they miss, they can just reload and fire again. Should they happen to hit the target, they can either maintain their current posture, or tweak it accordingly so as not to overshoot in the future. But they will never “hit” their target.  Especially this one.  Why not? Because it is a moving target, comprised of moving parts. And it is the result of the Fed’s own previous actions.”  (The Fed’s 2% Inflation Target Is Pointless  by Kelsey Williams)

Inflation is the debasement of money by government. The term ‘government’ includes central banks. The Federal Reserve debases money by continually expanding the supply of money and credit. This leads to a loss of purchasing power in the US dollar. The loss in purchasing power in the US dollar is the effect of inflation. It is cumulative and unpredictable.

By trying to specifically target the unpredictable effects (“rate of inflation”) of its own actions (the continual debasement of money), the Federal Reserve is chasing its own tail.

Another example of the unpredictability of effects of the Fed’s actions came almost a decade ago. Most observers expected the huge inflationary expansion of money and credit associated with QE to send prices of ordinary goods and services soaring.  That didn’t happen.

What did happen is that financial assets such as stocks and bonds, soared in price. Also real estate prices recovered and went to new highs. It is reasonable that the higher prices for investments and assets reflected absorption of the inflationary effects of the Fed’s money creation.

Indigestion In Repo Market

Recently, attention has focused on repurchase agreements and the rate for available funds in the overnight lending markets. A scarcity of liquid funds, and the corresponding sharply higher rates in the repo market spurred the Fed to provide billions of dollars to financial companies who needed the money to maintain their operations and fund their ongoing activities on a daily basis.

The Fed announced shortly after that it would buy $60 billion of Treasury debt each month until June 2020 to insure that liquid funds are available.

Wonderful, you say. The Fed has saved the day again. But are there broader implications?

To some it might seem logical that the actions of the Fed are policy driven and could lead to disastrous effects, such as runaway inflation. Then again, that is what quite a few observers thought about the Fed’s actions a decade ago. We know that things did not turn out as expected.

No, runaway inflation is not the bigger risk. The bigger risk, and critical problem, is illiquidity. The illiquidity and fragility of the system is such that another credit collapse is in the offing. Recent disturbances in the repo market are an indication of that illiquidity.

Ask yourself this question: How long can someone loan huge amounts of money indefinitely before unexpected consequences bankrupt them? How long can they do so without seeing the results that justify their own viability, let alone, those who are beholden to them?

In addition, the Fed’s inflationary efforts are losing their intended effect. The Fed has lost control of things and spends most of its time putting out fires.

Purpose Of The Fed

The arguments about Fed policy center on what is, or isn’t, appropriate. Should the Fed lower rates; or raise them? Should it change the reserve requirements? Is Chairman Powell living up to earlier expectations for a “more transparent Fed?”

The problem with those questions is that they presume the Fed exists for the purpose of orchestrating financial order and providing support for the system in ways that will benefit all of us. That is not the case.

The US Federal Reserve exists for the benefit of the banks and bankers. Their purpose and motivation is not aligned with ours. Fed objective is to facilitate the ongoing creation of money and loans which generate interest income. The Fed also acts as an agency of control for member banks and a collective foundation of support for the larger banks. (see The Federal Reserve – Purpose And Motivation)

Ironically, our financial problems are the result of the Fed’s ill-advised attempts to manage the economic cycle. Yet, the Federal Reserve caused the Great Depression and the Great Recession. Is it realistic to think that they can prevent another credit collapse? On the contrary; it is dangerously presumptive.

(also see Federal Reserve – Conspiracy Or Not? and The Federal Reserve And Drug Addiction – A Prediction)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2019 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules