Authored by Brandon Smith via Alt-Market.com,
At the beginning of 2018 I wrote extensively on what was likely to happen under the administration of Jerome Powell, the new Federal Reserve Chairman. In my article ‘New Fed Chairman Will Trigger A Historic Stock Market Crash In 2018‘, published in February, I predicted that the Fed would continue interest rate increases and balance sheet cuts throughout the year and they would knowingly initiate a crash in equities.
To be clear, this was not a very popular sentiment at the time, just as it wasn’t popular when I predicted in 2015 that the Fed would launch interest rate hikes instead of going to negative rates in order to start a catalyst for economic crisis. The problem some people have with this concept is that they just can’t fathom that the central bank would deliberately crash the system. They desperately cling to the notion that the Fed and other central banks want to keep the machine rolling forward at any cost. This is simply not true.
The claim is that the banking elites are “required” to keep the system propped up in a state of reanimation because they are reliant on the system to provide capital and thus “influence.” The people that assert this argument don’t seem to understand how central banks operate.
As most liberty activists should know by now, central banks are essentially a legally protected counterfeiting scheme. Using fractional reserve banking at a ratio that is secret, central banks create their own capital from thin air, and they can infuse capital into international banks at will when it suits their purposes. There is no “profit motive” for the banking syndicate. They can print the cash or digitally conjure it anytime they wish, and they can use it to purchase tangible assets before their printing diminishes the buying power of the currency, passing price inflation on to regular citizens.
Thus, keeping the system in perpetual positive motion is not necessary in terms of the transfer of wealth from the population to the banking class. In fact, economic crisis events are very useful to the elites because these events allow the banks to buy up concrete assets like natural resources, businesses and properties for pennies on the dollar.
For example, this is exactly what they did during the Great Depression when major banks like JP Morgan bought out thousands of failing local banks across the U.S. and took control of mortgages and other assets being paid off by a vast portion of the American citizenry. The banking system never looked the same again, and international banks continue to dominate ever since as localized competition remains elusive.
This also occurred after the crash of 2008 when companies like Blackstone bought up billions in distressed mortgages for well below previous market value, taking control of the property market and turning bankruptcies into rentals.
The 2008 crash was an asset buying bonanza for banks and corporation bailed out by the Federal Reserve. Low interest rates provided endless cheap credit through which companies could buy anything and everything. Of course, they mostly bought their own equities through stock buybacks, artificially inflating the stock market to the point of absurdity while taking on historic levels of debt — but we’ll get to that in just a moment.
The point is, there is every reason for central banks and their international corporate banking partners in crime to want a controlled demolition of the economic system. As long as they always control the dominant currency mechanism and the means of wealth distribution, they can use fiscal disasters to buy up hard assets for almost nothing.
The profit motive argument against deliberately triggered market declines has no legs when we consider this reality. But there is another reason far beyond the issue of asset accumulation; namely the psychological effects these events have on the masses.
Economic panic is a very useful tool in the hands of the banking establishment for molding social conditions in a way that gives them greater psychological power over the public. In every instance of financial catastrophe it is the banker cabal that is asked to step in and save the day. In 2008 it was the Federal Reserve that was tapped to act as a hero to the mainstream, and only through the tireless efforts of alternative economists and liberty activists has this fallacy been exposed to some in the population.
In the next crisis, it will be the IMF that is used as the front organization for the next rescue as market collapse leads into a crisis in confidence in the U.S. dollar. I outlined the plan for this in my recent article ‘IMF Reveals That Cryptocurrency Is The New World Order End Game.’
The average person is completely unaware of the Hegelian con-game being played here. And, when banking institutions step in as the designated “caregivers” to the ailing economy, what we sometimes see is a kind of reverse "Florence Nightingale effect", in which the patients fall in love with the nurse merely because they have associated the extension of economic function to an extension of their lives (or at least, an extension of comfort in their lives).
The next engineered crash is shaping up to become the most epic in history, and make no mistake, it has already started.
Even now mindless optimism and blind faith in the markets continues, and the assumption on the part of the investment world is that the banks will eventually be forced to admit their “policy error” on tightening and that they will revert back to lower rates or even more QE. This is not going to happen.
An example of the Fed reversal fantasy was the reaction to Jerome Powell's recent speech in light of "criticism" by the Trump Administration. Powell's statement included a throwaway line indicating that the Fed rate was "just below" the neutral rate, which investors and algo trading computers immediately interpreted as a "dovish" pull back from a previous statement in which Powell said they were a "long way" from the neutral rate. Stocks spiked on the "shift" in speech patterns.
Yes, investment markets really are that desperate for a sign that the Fed will keep the party going. But let's look at reality.
Powell is simply repeating a fact, not changing Fed policy on rate hikes - the Fed funds rate is 2.19% technically just below what the Fed considers the "neutral rate" of inflation; around 2.5% to 3%. The assumption markets are making is that the Fed will not hike BEYOND the neutral rate of inflation. This is a naive assumption. At no point did Powell indicate the Fed would stop rate hikes. In fact, Powell dared to reiterate his assertions that the US economy is healthy and well into "recovery". This is not the statement of an institution that is about to stray from its current path.
I would also point out that all this focus on interest rates might be a distraction from the Fed balance sheet cuts. I cannot recall if Trump ever complained about this issue, but asset cuts are a primary key to the decline in stock markets, perhaps more so than interest rates.
Hopium sellers have been peddling several scenarios lately in which the current downtrend in markets will stop and the bull rally party rekindled. The three most pervasive are…
Scenario #1: The Fed suddenly skips rate hikes in the near term under pressure from markets and the White House.
Scenario #2: The Fed fully admits to policy error in light of stock market declines and re-launches QE.
Scenario #3: Trump announces successful trade war negotiations, primarily with China, and ends tariff measures.
As I have noted many times in the past year, Jerome Powell admitted in the minutes of the October 2012 Fed meeting that tightening measures in the face of extreme market addiction to stimulus would inevitably cause a crisis event. The Fed had created a monster of a bubble, and a monster in the investment world, and they knew they were doing it. With corporate and consumer debt levels at historic highs, any interest rate increases, no matter how seemingly marginal, will kill stock buybacks, cause corporate cutbacks and derail consumer spending.
Fed asset cuts will also offset stock buybacks over time and drag markets lower. If the suspicions of alternative economists are correct, then the Fed has been holding a massive short volatility position for years. Powell seems to confirm this kind of market manipulation in his statements in the Fed minutes of October 2012. If they continue to unwind this position as they dump their balance sheet, stocks will crash regardless of interest rates.
Today, Jerome Powell is taking the exact actions in policy that he originally admitted would cause a crash. Powell is not tightening out of stupidity, nor is he tightening out of a misguided error in policy. Powell is tightening because the banking elites WANT a crash. Period.
Because of this, it is highly unlikely that the Fed will stop tightening measures, let alone reverse them. The Fed does not care about “pressure” from markets, or pressure from the White House which I believe is part of a farcical Kabuki theater. The Fed will continue hiking up to the neutral rate of inflation, and probably well beyond that into 2019. This is exactly what they did during the Great Depression to escalate the crisis, and it is exactly what they will do today.
Trump’s trade war rhetoric and false media headlines are now the only levers that can be pulled to stall the market landslide. But it appears that this stalling is meant to make the crash more manageable, not stop it from happening. With Trump's cabinet loaded with globalists, it is foolish to believe the current trend will end any other way.
Trump will jawbone markets up at times, but overall there will be no progression in negotiations. The latest Powell statement is most likely designed to help mitigate the downturn that will occur when the Trump Administration announces "no progress" with China after the impending G20 conference. The trade war will eventually escalate to include threats to U.S. bond markets and the dollar itself.
Trump’s policies match almost exactly with the model followed by Herbert Hoover preceding the crash of 1929 and the Great Depression. His trade war is a perfect distraction for the masses as central banks, the real culprits behind the crisis, pull the plug on life support for the economy. We will at times hear rumors of new ground gained with China and other nations, and these rumors will continue to be dispelled days later as they have been for the past year.
The battle between Trump and the Fed is purely a soap opera designed to lure conservatives into the Neo-con fold as they are told that Trump is a mere victim of Federal Reserve's interest rate hikes. The rest of the world is being told that Trump is a gigantic baby, throwing a tantrum over a collapsing stock market bubble that he originally took credit for. They will be told that it is Trump's tariffs and populism that are destabilizing the economy, not the Fed's tightening into economic weakness.
The truth is, BOTH Trump and the Fed are working in tandem while playing a game of pretend-fighting that Trump knows well from his days in the WWE (World Wrestling Entertainment) and reality TV.
The establishment wants the system to break down, but at a speed that is manageable for them and psychologically disarming for us.
The optimistic claim that what we are seeing in equities is nothing more than a “correction” is a fallacy that misrepresents the reality of conditions on the ground. It is based on assumptions that the Fed will stop tightening measures and that the trade war will end abruptly and favorably. It is also based on severe cognitive dissonance — the optimism of drug addicts, their veins filled with years of QE heroin. The truth is that the drug binge is over.
The banking elites are done with that phase of the collapse, and they are moving onto the next phase. It is clear in their actions, it is clear in their public admissions, and it is clear in the downward spiral of the economy at large. What we are seeing is not a “correction,” it’s a crash. It is time for people to accept this fact and prepare accordingly if they have not already.
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