Fed Cycle: Boom & Bust

First Crisis

After the influence and probably money corruption led by JP Morgan to create a central bank, the Federal Reserve established since 1913 faced its first test in 1920. The economy experienced a built-up demand from WWI that ended in November 1918. The rising imports put a strain on our currency that was still under the gold standard. To counter inflation the Fed began a series of interest rate hikes. From a war-time low in 1917 of 3.5% to then, a new-record high 7% in 1920. 

Result

This caused a dramatic slow-down to the economy. It led to a depression. Unemployment rose. Prices fell. This is deflation. Fortunately, the Fed had an intelligent leader in the New York region in Benjamin Strong. He felt that the economy would self-adjust. It might take two years, but there is no need to panic by adding stimulus or money printing. The government needed patience to allow the economy to self-adjust. It did. By 1922 the economy fully recovered. His thinking was a boom to bust period is a natural occurrence. The Fed passed the test. The economy continued to expand and the Roaring 20s is now folklore. 

Timeline

The Federal Reserve would be challenged again in 1929. It would fail. In fact, they would be responsible for every economic crisis since 1929 and fail each time. The ego leaders believe that they can engineer an economy. They manipulate interest rates. They print money. Now, they even buy bonds (QE). They back government leaders who choose stimulus. The cabal at the Fed and our wealthy government leaders do not understand two things. One, busts occur naturally. The second is from the mind of the great economists, Milton Friedman. In discussing interest rate changes the Fed does not understand the difference in the date of the change to the time that the impact takes hold. He said, "...it is a long and variable lag of monetary policy..." Benjamin Strong believed it takes at least two years. Putting together Strong and Friedman, we come to this conclusion after we looked at the recent history of rate changes. The present journey of higher rates actually began under chairperson, Yellen in 2015. Prior to that time, the rates were kept artificially low. Rate went from 0% to .25% in 2015 to 5% and 5.5% today. Of course, the rate for you and we pay is considerably higher. Taking the 2 to 3-year lag time in monetary policy, the economy should have adopted well by 2018. It did, but COVID appeared in 2019. This disrupted everything. If we flash forward to 2021 and the end of COVID, monetary policy says the lag time for the effects of the rate increases would be the end of 2023 or some time in 2024. We should experience an economic slow-down and higher unemployment.

We have already stated that you and us at Evolution, already feel like that we are in a recession. We named it the "stealth recession." It appears that the rest of the nation will feel the effects of the idiots at the Federal Reserve sometime in 2024. In the meantime, try to enjoy the holidays by giving your best to one another. Maybe sing our favorite Christmas carol, "All I want for Christmas is to end the Fed!"  Peace.