Think Like the Fed — If You Dare

Hey There Income Hunters,

Let’s think like the Fed.

It’s scary, I know!

Here’s what I mean …

Yesterday, I explained what the Fed is using its reverse repo facility to do

Our central bank is protecting segments of the economy most closely related to homeowners and savers.

So the next question is …

Is the Fed engineering a correction so that it has an excuse to print more money to send directly to those two groups?

Here’s where it’s important to think like the Fed!

Because Fed chair Jerome “J-Pow” Powell and co. are plotting the next phase of devaluing their debt and transferring money from the haves to the have-nots.

The Fed and the Treasury, led by Janet Yellen, know the US cannot economically grow enough to ever pay off its $28 trillion debt.

And our financial overlords also know they cannot raise interest rates to fight inflation.

Why?

That would risk a debt crisis that would burst ALL the bubbles and bury ALL Americans.

So the singular goal is this …

Print money and get it directly to consumers.

Now not only does J-Pow have to balance the asset bubbles …

 

He and Yellen must also find a way to get Americans to BELIEVE they need to print “mo’ money.”

I know how they can do it …

Talk Like a Hawk / Walk Like a Dove

The Fed did a great job of talking like a hawk in June’s Federal Open Market Committee (FOMC) statement.

The central bank’s goal was to appear to care about high inflation and show they would respond if inflation heats up further.

The media and administration paint a bright picture … and Americans are drinking the Kool-Aid of stimmy checks and extended unemployment benefits.

But the benefits taper, we will get a clearer picture of the financial condition of consumers … 

As you can see below, consumers have been tapping into savings and consuming less in the past couple of months. 

 

The stimulus well is running dry.

The Bottom Line …

The banks have maxed out their balance sheet capacity for taking on additional risk.

Now they are sending money back to the Federal Reserve via the reverse repo facility, where they park their cash in exchange for Treasury securities.

This reduces their ability to use quantitative easing (QE) to keep the economy afloat. 


More cash at the Fed means less money supply.

The reverse repo agreements allow commercial banks to send excess cash back to the Federal Reserve for a .05% return.

Banks pursue repo deals when they cannot make loans with their cash due to hitting maximum leverage levels.

While reverse repos are temporary in nature, they are effectively permanent since the agreements are rolled into the next expiration until they are closed out.

This is important to understand for two reasons.

      1. It means that cash is now flowing out of the financial system despite some ongoing purchase programs.
      2. Banks now have so much debt that they cannot grow their loan books and have started to reduce loans. Money supply is now unable to grow because the Fed would not renew the exemption on the bank leverage ratio.

The banking system is, in essence, going through a tapering without it explicitly being executed  by the Fed.

This is a strong deflationary force that could create a liquidity crisis similar to December 2018.

Bring It Home

The crossfire of pressure on the economy today is incredible …

      • The debt issues that began in 2007 are much higher today.
      • The stock market is at valuation extremes similar to 1999.
      • And we now are approaching the inflationary pressures of the 1970s.

So, you have inflationary forces of exploding money supply and deflationary forces of a massive debt burden.

The Fed’s only move is to engineer a correction in the markets, which will allow them to print more money.

They need to continue to orchestrate an inflationary trend that will reduce the debt…

This makes it critical as #income hunters to manage your time frames.

In the short-term we may hit a stock market correction like December of 2018, which will quickly reverse as J-Pow breaks out the bazooka and fires trillions more into the economy.

Here’s what that looks like:

The plan that works for this inflation/deflation tug-of-war is dollar cost averaging into core holdings of high-quality mining stocks that will not tank in the correction.

I believe the next stimulus will bypass banks and go directly into the economy, which will crush deflation for good …

And the commodities and metals will soar

Be courageous and be brave. The long-term inflation story will win out …

Now is the time to prepare.

Live and Trade With Passion, My Friends…

Griff

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