Wednesday, September 23, 2015

Real Reason Why Fed Didn't Raise Rates

How quickly they forget. In September 2013 with the Fed's Fund Rate exactly where it is today, the Fed declared that in their forecast model that they would increase the Fed's Funds Rate to 1% by year-end 2015 and 2% by year-end 2016. Then, with the usual conference follow up which is really market manipulation, Janet Yellen said it "could" happen earlier. We get the same manipulation this week.
How about this one? One year ago, September 2014, the FOMC said in its forecast model to have year-end 2015 at 1.375% and for the year-end 2016 to 2.875%. So much BS!
they have reduced their forecast model with a possible negative Funds Rate of -0.125%. Don't think that is possible? It already is happening in Switzerland and elsewhere. In laymen terms this means that you have to pay the banks to hold your money. This is the same argument that anti-gold, pro-fiat people use to proclaim. You had to pay the bank safety deposit fees to store your gold.
Smart Money
is moving into gold. This is the same awakening that happened in the 70s. Gold rose from $42 to over $800. It died because of Volker and those gold people who made those investments have passed away. Time works. People can't even remember September 2013. It may cost you to store gold, but it retains value and when it moves, it moves quickly. Think Apple or Google before they paid dividends. The P/E was high, but you didn't mind because they were growth stocks. A word to the wise is sufficient.
Now, why didn't the Fed raise rates?
because they can't! Any rate increase wipes out previous issue bonds at lower rates and the bond market is bigger than anything. In addition, the Fed is over leveraged. If they were a regular bank, they would be insolvent. Wrong, you say. The Fed can always print new money. This is true and it is exactly what they will do and have always done in the past. However, this is the reason why our standard of living has decreased because the dollar will devalue and it cost more to live. Space is too limited to delve into this aspect of compounding derivatives on derivatives and leverage on leverage, but continuing with rates and bonds. As big as bonds are, they take second banana to the big picture -
Since the last Fed Rate Hike in June 2006:
*Global government debt has increased by $24.11 trillion or 85.77% to $55.22 trillion.
*Global household debt has increased by $8.085 trillion or 28.31% to $36.64 trillion.
*Global corporate debt has increased by $23.61 trillion or 69.06% to $57.8 trillion.
Total global debt plus stock equity has increased since the last Fed Rate Hike by $81.33 trillion or 60.1% to $216.6 trillion which is equal to 289% of Gross World Product.
Just last week the US government released its Q2 current account statement. It said our account deficit came in at the low end of expectation at $109.7 billion versus $118.3 billion in the first quarter. In relation to GDP, it is a manageable 2.5 percent. More BS!
Dear reader, if you receive $100 a week, but owe $100 a week, how much do you have to manage? Zip. Correct. Our national deficit is exactly the same as our GDP, but it is growing faster due to interest rates and higher rates will make it grow even faster. Now, do you see the big picture? This is why their is talk of negative rates. Now is the time to get some gold because there is a second awakening happening just like in the 70s and why I say End the Fed!