The Federal Reserve’s FOMC predictably nudged the Fed Funds rate up
25 basis points (one quarter of one percent) to set its “target” Fed
Funds rate level at .75%-1%. Nine of the faux-economists voted in favor
of and one, Minneapolis Fed’s Neil Kashkari, voted against the
meaningless rate hike.
Or is it meaningless? Ex-Goldman Sachs banker Neil Kashkari was one
of the Treasury’s Assistant Secretaries when the Government made the
decision to bail out Wall Street’s biggest banks with nearly $1 trillion
in taxpayer money. It was also when the Fed dropped the Fed Funds rate
from about 5% to near-zero percent.
Despite Yellen’s official
stance that the economy is expanding and the labor market is “tight”
(with 37% of the working age population not considered part of the Labor
Force – a little more than 94 million people) Kashkari voted against
the tiny bump in interest rates. This is likely because he is fully
aware of risk to the banking system – perched catastrophically on
hundreds of trillions in debt and derivatives – of moving interest rates
The Fed’s goal is to “normalize” interest rates. The financial media
and Wall Street analysts embrace and discuss this idea of “normalized”
interest rates but never define exactly what that means. For the better
part of the Fed’s existence, the “rule of thumb” was that long term
rates (e.g. the 10-yr Treasury rate) should be about 3% above the rate
of inflation. And the Fed Funds rates should be equal to or slightly
above the rate of inflation.
Using the Government’s highly rigged CPI index, it implies the Fed
Funds rate would be “normalized” at approximately 2.7% and the 10-yr
bond around 6% based on Wednesday’s CPI report. Currently the Fed Funds
rate is 3/4 – 1% and the 10-yr is 2.5%. Of course, since the early
1970’s, the CPI calculation has been continuously reconstructed in order
to hide the true rate of price inflation. For instance, the current CPI
index does not properly account for the rising cost of housing,
education, healthcare and automobiles.
John Williams’ of Shadowstat.com keeps
track of price inflation using the methodology used by the Government
to calculate the CPI in 1990 and 1980. Using just the 1990 methodology,
the rate of price inflation is 6.3%. This would imply that a
“normalized” Fed Funds rate would be around 6.5% and the 10-yr bond
yield should be around 9.5%. So much for this idea of “normalizing”
interest rates. Using the Government’s 1980 CPI methodology, Williams
calculates that the stated CPI would be 10.3%.
Most of the hyperinflated money supply has been directed into stocks,
bonds and real estate. But based on the cost of a basket of groceries,
healthcare and housing alone, price inflation is accelerating. If the
Fed were to “normalize” interest rates at 6.3%, it would crash the
financial and economic system. In other words, the Fed is powerless to
use monetary policy in order to promote price stability, which is one of
In today’s episode of the Shadow of Truth, we discuss the insanity
that has gripped the markets as symbolized by the Federal Reserve’s FOMC
Rory Hall, Editor-in-Chief of The Daily Coin, has written over 700 articles and produced more than 200 videos about the precious metals market, economic and monetary policies as well as geopolitical events since 1987. His articles have been published by Zerohedge, SHTFPlan, Sprott Money, GoldSilver and Silver Doctors, SGTReport, just to name a few. Rory has contributed daily to SGTReport since 2012. He has interviewed experts such as Dr. Paul Craig Roberts, Dr. Marc Faber, Eric Sprott, Gerald Celente and Peter Schiff, to name but a few. Visit The Daily Coin website and The Daily Coin YouTube channels to enjoy original and some of the best economic, precious metals, geopolitical and preparedness news from around the world.
Dave Kranzler spent many years working in various Wall Street jobs. After business school, he traded junk bonds for a large bank. He has an MBA from the University of Chicago, with a concentration in accounting and finance, and graduated Oberlin College with majors in Economics and English. Dave has nearly thirty years of experience in studying, researching, analyzing and investing in the financial markets. Currently he co-manages a precious metals and mining stock investment fund in Denver and publishes the Mining Stock and Short Seller Journals. Contact Dave at firstname.lastname@example.org.
The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
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