J-Pow Has Spoken


Hey There Income Hunters,


Jerome Powell certainly seemed nervous yesterday in his first FOMC speech since being reappointed as Federal Reserve chairman


He delivered a hawkish plan going forward, although he did his usual two-step dance to soften the response.


The chart below illustrates:



That’s a QE taper of $30 billion a month for three months, then QE will be down to zero. After that, the Fed dot plots reveal three rate hikes in 2022, three in 2023 and three more in 2024. 


Today, I’ll lay out why the Fed is caught in a trap that can only end with a significant market correction that will force the Fed to go back to printing money. 


Macro Machines


Macro driving forces ARE the most powerful flows driving the markets.


Covid accelerated the speed at which the US will reach the end of its long-term debt cycle.


The graph below was first posted in July of 2020 and the US government’s debt is already over $29 trillion!

 


At this level of debt versus GDP, $1 of new debt produces less than $.50 of economic production.


Only very high inflation and low interest rates over many years can shrink the debt down low enough to restart the economy.


A Look at Corporate Debt


Now, corporations can’t just print money, and the graph below illustrates a real problem for them …


You see, corporations are reaching all-time high levels of short-term debt that matures within 5-years …


And many of these entities won’t have the cash to foot the bill for the forthcoming increased interest costs on the debt. 


I believe the corporate debt buildup is a 1,000-pound gorilla and will ultimately be the poster child for this crisis.


Household Debt


Two things with households …


First, they have been tapping into their savings for months and have taken the savings rate from a peak of 33% down to 7%, which was the level pre-Covid.


Second, they have increased their debt in every category over their levels during the 2008 financial crisis…



Bring It Home

The debt makes it impossible for the Fed to successfully steer the US economic ship to a recovery or smooth reset.


Debt restructuring and default is a necessary cleansing in any economy so it can restart with a more solid foundation.


For politicians, inflation is the chosen path so they can look like the good soldier who did their best to help their citizens by increasing debt and sending them stimmy checks.


#IncomeHunters know better and exploit the inflation to our advantage and massive trading profits.


Keep an eye out for Saturday’s Power Income Newsletter where I’ll take you through one of the best strategies to not only protect but build generational wealth during these hard times.


Live and Trade with Passion My Friends,

Griff

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.