Today the Federal Reserve will meet and announce at 2PM NY time whether or not they are hiking rates. The fact that there is so much mainstream media attention being placed on this announcement as one that could tank the US stock markets if they announce a rate hike versus cause it to soar if they announce further delays is absurd if one pauses for a rational second to consider the following. The US Federal Reserve cut interest rates to 0.00% to 0.25% on 16 December 2008, and it has been at this level for more than 6½ years now! Furthermore, starting in about the last quarter of 2009, the mainstream media has been speculating that the Feds would raise interest rates. This means that for 23 consecutive quarters, the mainstream media has speculated that the Feds would raise interest rates, and for 23 straight quarters, the Feds have issued a bunch of rambling nonsense about “subdued inflation trends” and low US unemployment imbedded within a non-wavering statement that they will maintain a fed funds rate at 0% to 0.25%. Just check out the consistency of the statements they have released every few months for the past 6½ consecutive years below (I have only posted their decision from one statement per year though all FOMC statements every year for the past 6½ years state the same basic nonsense.)
Release Date: August 12, 2009
“The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
Release Date: August 10, 2010
“The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
Release Date August 9, 2011
“The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
Release Date: August 1, 2012
“The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”
Release Date: July 31, 2013
“The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
Release Date: July 30, 2014
“In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent
Release Date: July 29, 2015
“The Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.”
Even more ridiculous is the Fed’s modification of this standardized statement after stating in 2013 that they would hike interest rates if the “official” (but very fake) unemployment rate dropped below 6.5 % and their “official” (but very fake) inflation statistic was projected to be “no more” than 2.5%. Given that the latest “official” inflation rate through the 12 months ended July 2015 was 0.2%, which is “no more” than the given 2.5% inflation target, and the latest “official” inflation rate was 5.10%, well below the 6.5% target at which the Feds stated they would start raising the Fed Funds rate in 2013, one would think that an interest rate hike today was guaranteed if one trusts the bankers’ rhetoric. However, if one simply looks at the facts, one will realize that the Feds’ word is worth next to nothing, as all their policy decisions are driven by what is best for their masters (industrialists, statists and corporatists), and never by what is best for the country.
The facts are as follows. The “official” unemployment rate has been below 6.5% and the “official” inflation rate has been “no more” than 2.5% for 17 consecutive months. Consequently, we have met the conditions for 17 consecutive months for the Feds to start raising interest rates but yet no interest rate raise has transpired. Why? Janet Yellen knew that if she raised interest rates 17 months ago (when their stated conditions for raising interest rates were initially met), that this action would have had disastrous consequences for US stock markets and for hundreds of trillions of notional amounts of derivative contracts, the vast majority of which are directly tied to interest rates. Furthermore, it appears that 17 months ago, they had not yet provided ample opportunity to their crony corporate friends to exit the US stock market. Consequently, they could not have chosen to start manufacturing a stock market decline 17 months ago for fear of angering the ruling class that lords over them. Consequently, the Federal Reserve bankers merely altered the language contained in their statements regarding the conditions that had to be met for them to start raising interest rates. Instead of stating that they would raise interest rates if projected inflation was “no more” than 2.5% and if unemployment dropped below 6.5%, they stated that they would only raise interest rates by assessing realized and expected “progress…towards its objectives of maximum employment and 2% inflation.”
The facts show the total absurdity of paying attention to anything Central Bankers state, as their statements should have zero credibility among the people after this inspection of their past statements and actions. Unsurprisingly, mainstream media journalists seem to be waiting with bated breath upon every word that comes forth from Janet Yellen’s lips. Furthermore, to add to this mountain of absurdity, is a 0.25% rate raise even significant after nearly 7 consecutive years of 0% to 0.25% interest rates? When Nixon took the world off the Bretton Woods standard in 1971, and Jimmy Carter called upon Paul Volcker to repair the world’s loss of faith in the USD, note that Volcker raised Fed Funds rates by a whopping 10.75% from 4.75% to 15.5% in less than two years from 1977 to 1979, and then again, by another 4.5% in the next year to 20%. Today, even a 2% raise in interest rates seems unfathomable, as such an interest rate raise may cause so many defaults on interest rate driven derivative contracts that chaos and financial Armageddon may ensue.
In other words, it is absurd that the global financial system today is so fragile and so overblown with hot air, that the more than quadrillion dollars of notional value of derivatives and the entire US stock market’s fate is now balanced on a fulcrum that could tip into a deep slide by interest rate increases that would be viewed as insignificant and piddling just a few decades ago. This is absurdity at its finest. Furthermore, if you wonder why I don’t refer to the “official” $700+ trillion of derivatives contracts in use today, since an accounting trick was used to knock the notional value of global derivatives overnight in half from $1.4 quadrillion to $700 trillion a few years back, yes, the real notional value of global derivatives is still $1.4 quadrillion.
So will the Feds raise interest rates later today? Given their past history, I believe the answer is no and that they are engaging in the same bluster and using their mainstream media pawns to spread propaganda that they may raise interest rates. Consequently, this would allow the MSM to spin continued inaction and paralysis on their end into a “positive” for US stock markets. However, this is pure speculation on my end as predicting the decisions of psychopaths is not a science or an art or even worthy of anyone’s attention. We all know that the US Federal Reserve causes massive price distortions that the MSM likes to falsely call “booms”. We all know as well that the US Federal Reserve bankers deliberately unwind the massive price distortions they create from time to time, ensuring that their crony corporate friends are informed of this move well in advance of the time they decide to execute it. History has proven that crony industrialists and corporatists don’t tend to have their riches destroyed by “busts”. Quite to the contrary, they tend to enrich themselves on the “bust” cycle of this equation as well. To crony corporatists, the artificially engineered “bust” part of the cycle is just another opportunity to become even richer. Consequently, this is not an article about predicting the Feds decision on interest rates later today, because as I stated, there is no science or art or even anything to be gained by predicting the moves of psychopaths. To do so is tantamount to flipping a coin, stating that it will come up heads, and when it does, to pat oneself on the back in an absurd congratulatory manner for this accurate “prediction”. Who cares if I’m right and the Feds do nothing as usual? Even more importantly, who cares if I’m wrong and the Feds hike interest rates? A guess is just a guess and nothing more. Whatever the decision today, there will likely be a knee-jerk reaction to this decision in US stock markets, and it could even be a significant knee-jerk reaction, but if the Fed bankers decide not to raise interest rates, this is NOT a win for the US stock market despite any short-term knee-jerk reaction that may falsely interpret this decision as a win. On the contrary, unless the Feds decide to raise interest rates by 0.50%, a 0.25% raise is not going to really affect any markets significantly in the long run unless they are followed by quarterly raises every quarter. In the end, whatever the Feds announce at 2PM NY time today should not affect your long-term outlook on markets as neither of the two possible decisions will significantly alter the future fate of global markets. Instead, the most important thing to understand is the massive fraud that is systemic in the global financial system and to allow a deep and complex understanding of this fraud to drive your investment decisions. This understanding is much more important than the Fed’s interest rate decision later today. If one doesn’t understand the systemic fraud in this system, one will be driven to poor decisions by knee-jerk reactions to short-term events rather than to build and formulate a strategy that will ignore short-term knee-jerk reactions and survive and thrive in the long-term. With off-the-charts volatility in US, Japanese, Chinese and European markets caused by 6-sigma and 7-sigma events, as I discuss in the below vlog, trying to build an investment strategy around these banker-created, HFT algo driven, short-term volatile events is pure foolishness.
This article is a commentary on the complete absurdity of the state of our global financial system that has been created by foolish Central Banker monetary policies designed to benefit only the smallest sliver of society, the disinformation that passes as “news” today, the lack of integrity in MSM financial journalism, and the fact that one must separate the wheat from the chaff to understand how to formulate intelligent investment strategies moving forward no matter if the Feds decide to do nothing or decide to hike interest rates by a piddling 0.25% later today. Oh, and one last comment. Yes I do realize, and have realized for decades, that the official economic indicators stated by governments worldwide are falsified. Real inflation in the US is a minimum of 2% to 3% higher than the “official” statistic and real unemployment in the US is a minimum of 4 to 5 times higher than the “official” 5.10% statistic. But since the Feds used these fake statistics in their statements to provide the timeline of when they would hike the Fed Funds rate, I thought that it would be particularly absurd to illustrate that even when their fake targets are met using their fake statistics, the Fed bankers still renege on their previous promises to raise interest rates due to the calamity that significantly higher interest rates would wreak upon the notional 1.4 quadrillion of outstanding derivatives contracts.
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About the author: JS Kim is the Managing Director of maalamalama, a fiercely independent investment research, analysis and education firm that provides investment and wealth preservation strategies to combat the systemic fraud of the global banking and investment industry.