Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
CHIA Coins After 1st Week of Plotting 140 Plot 14tb Farm. Crunching the Numbers How to Win - 15th May 21
Tips to Create the Best Cross-Functional Teams - 15th May 21
Gold: Lose a Battle to Win the War - 14th May 21
Are You Invested in America’s “Two-Hour Boom” Fast Shipping Stocks? - 14th May 21
Gold to Benefit from Mounting US Debt Pile - 14th May 21
6 Solid Signs You Should Have Your Smart Device Repaired Right Away - 14th May 21
Ways to Finance Your Business Growth - 14th May 21
Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
How Much CHIA Coins Profit from 100 Plot 10tb Farm? Hard Drive Space Mining - 13th May 21
Stock Market Bulls Getting Caught in the Whirlwind - 13th May 21
Legoland Windsor Mini land and Sky Train Virtual Tour in VR 360 - UK London Holidays 2021 - 13th May 21
Peak Growth and Inflation - 13th May 21
Where’s The Fed? Watch Precious Metals For Signs Of Inflation Panic - 13th May 21
Coronavius Covid-19 in Italy in August 2019! - 13th May 21
India Covid Apocalypse Heralds Catastrophe for Pakistan and Bangladesh - 13th May 21
TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
Gold Price During Hyperinflation - 12th May 21
Stock Market Extending Phase Two? - 12th May 21
Crypto 101 for new traders – ETH or BTC? - 12th May 21
Stock Market Enters Early Summer Correction Trend Forecast Time Window - 11th May 21
GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
Cathy Wood Bubble Bursts as ARK Funds CRASH! Enter into a Severe Bear Market - 11th May 21
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Federal Reserve And Interest Rates: Definitely NOT What You Think

Interest-Rates / US Interest Rates Nov 30, 2016 - 12:02 PM GMT

By: Kelsey_Williams

Interest-Rates

Where we are today is the culmination of decades of irresponsible financial/fiscal policies and a complete abdication of fundamental economics. But that should not be a surprise. The self-proclaimed purpose of the Federal Reserve Bank is to manage the economic cycles; an impossibly presumptive task and a violation of fundamental economic theory.


In addition, the Federal Reserve Bank is also charged with ensuring the financial operation of the US Government. Or, in other words, maintaining their (the US Government’s) ability to borrow money by issuing more and more debt in the form of Treasury securities. In my opinion, this is the sole and overriding purpose behind the existence of the Federal Reserve. And it drives every decision they make. It is not about the economic effects of their policies on US citizens (individually or collectively). It is ALL ABOUT KEEPING THE US GOVERNMENT SOLVENT. The US Government is not solvent, of course, but maintaining and reinforcing the confidence in their financial viability is absolutely essential. And nothing else takes precedence.

In the late 1970s the effects of government inflation threatened to cripple the US dollar and bring the US economy to its knees. US Treasury Bonds were losing value faster than most stocks, which were also declining at precipitous rates. Actions taken at that time averted disaster – temporarily. We have had periods of relative stability since, as well as more volatility and financial crises. The cycle continues. And things will get worse.

The US dollar is in a state of perpetual decline (by intention) which will ultimately end in complete repudiation. Whether or not the Federal Reserve raises interest rates is not the real issue. They will do – or not do – whatever they think will keep the charade going for a while longer. But the point of no return has been passed. We may well see more periods of relative financial and economic stability. However, regardless of whether or not we do, we will continue to see the US dollar decline in value/purchasing power and we will be subjected to more erosion of our economic freedom by virtue of more regulations and restrictions.

The US Federal Reserve Bank does not control interest rates. They definitely try to influence the direction and level of nominal interest rates by their actions and verbiage regarding the Fed Funds rate (the rate that member banks of the Federal Reserve System charge each other to borrow funds on a overnight basis) and the Discount rate (the rate that the Federal Reserve charges member banks to borrow funds directly from the Federal Reserve). By virtue of their efforts they hope to encourage economic activity that meets their objective of “managing the economic cycles”.

Interest rates are determined in the market place. Investors buy and sell bonds continually, all over the world. The transaction price for a bond is determined by an agreed upon yield (interest rate) between the buyer and the seller. If investors are suspicious about the credit worthiness of the bond issuer, or are concerned about effects of higher inflation, then they tend to want a higher yield/return for tying up their money for a longer period. Hence, bond prices would decline until interest rates reach a higher level that is acceptable to both buyers and sellers.

So why has the bond market responded so willingly to the efforts of the US Federal Reserve Bank? Why have we not seen a similar response from the bond market such as that cited above regarding the 1970s? There are a couple of reasons. For one thing, the Federal Reserve Bank has purchased a lot of debt since the crisis of 2008. They have actively acquired various debt securities and their purchases have helped stem the aggressive selling of various bonds. Also, it is quite possible that bond holders do not see as much risk involved (especially interest rate risk on a projected basis) and are more patient. In addition, foreign governments are the largest holders of US Treasury debt. Hugely so. Trying to sell seemingly small amounts of their own holdings would still be large enough amounts to be disruptive to daily trading and would likely feed any weakness in the market causing further erosion of their own remaining holdings. And this is in light of the fact that the US Treasury Bond Market is the largest financial market in the world. Yes, bigger than the stock market.

Unfortunately, the Federal Reserve’s efforts have brought us to a point which is not very ‘manageable’. If interest rates rise from here, it will likely usher in a period of withdrawal – financially speaking. We might see a huge implosion of the debt pyramid accompanied by a collapse in the nominal US dollar price of all assets (stocks, bonds, real estate, commodities, etc.).

If rates continue near zero, or decline (negative interest rates), how low can they possibly go? And maintaining interest rates at these artificially low levels will eventually result in rejection and repudiation of the US dollar.

The dilemma is the result of decades of Federal Reserve activity in the market place. Now, people expect the Federal Reserve to solve a problem which they – the Federal Reserve – created. Good luck!

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.

© 2016 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