Hey There Income Hunter,

Edwin Starr asked in 1969 …

War / What is it good for? / Absolutely nothing / Say it again

That refrain speaks for itself as we watch another war kick off, at least in part, over energy.

This trend began in 1971 when the US agreed to protect OPEC countries in return for their promise to only accept dollars in exchange for oil.

As the song asks, what have those wars been good for?

Absolutely nothing.

In fact, after every war the US economy slipped into a period of negative growth.

It’s incredible how often history has repeated itself in the last 100 years and, funny enough, the Federal Reserve was always right in the middle of it.t.

Today we’ll take a look at the past few wars, the moves in oil and ramifications for the economy.

Key Episodes of War and Energy Leading to US Recession

1973-1975: The oil embargo initiated by OPEC against the US for our support for Israel in the Yom Kippur war. The price of oil quadrupled, forcing the US  to raise rates and sink our economy into recession for three years. This period was known as stagflation (Power Income Trader system stage 3).

1979 Iranian Revolution: The Shah of Iran was deposed and oil prices soared. Again, the Fed raised rates, this time to 20%, and the economy declined by 4.9%.

1990: Iraq invaded Kuwait and the price of oil surged, causing the US to unilaterally start a war to remove Iraq from Kuwait. Again, the economy went into recession and the economy contracted by 1.4%.

2008:Now this period was not influenced by wa.r but by oil as it was soaring from $95 to $147 and broke the back of the economy. The culprit was China buying before the 2008 Olympics and a weakening US dollar was fueled by the divergence between the US and China economies.

The Oil surge plus the bursting of the housing bubble pushed the US economy into a deep recession with growth dropping 5%. 

This is key to remember as once again China is stimulating its economy while the US is tightening. 

What Could Go Wrong Today?

Oil is the single biggest driver of headline consumer price index.

With inflation already soaring, if oil prices were to reach $135, global growth could shrink 75%. 

If oil went to $150, headline inflation could double. 

A move that dramatic would cause the Fed to reverse course because of oil’s impact on growth.

The bottom line is, if financial conditions deteriorate enough in an economy that is loaded with debt, the Fed has to come in and “save the day.” … Not.

Now, removing Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system would wreak more havoc on supply chains. 

SWIFT is the backbone for international financial transactions and removing Russia would severely limit its ability to export commodities into global markets. 

This is a major macro force that will drive flows into precious metals as the global economy weakens and central banks are forced to resume printing money and fueling the next trend higher for inflation. 

Bring It Home

Locking out Russia from the SWIFT system is the sanction to look out for.

Normally I would say the administration would be insane to take that step …

However, worse than being insane is that they are desperate and just may want to trigger a serious recession while also appearing strong against Russia.

This would give them time to step in with a nice big fiscal spending bill and look like heros heading into the midterms. 

Remember, if you can think like the Fed and government you can anticipate their moves and get out in front of the money flows.

Have a great weekend and as always …

Live and Trade With Passion,

Griff