debt
by
Chris Martenson
Executive Summary
- Why the Fed’s rate hikes are not actual “hikes”
- The new debt issuance directly or indirectly enabled by the Fed is staggeringly large
- Why the Fed’s intervention in the financial markets is creating worrisome instability
- As the risks mount, what should the concerned investor do?
If you have not yet read Part 1: The Federal Reserve Is Destroying America available free to all readers, please click here to read it first.
When Is A Rate Hike Not A Rate Hike?
The Fed keeps talking about raising interest rates, but they really aren’t doing any such thing. In fact they are doing the opposite.
I know that’s a controversial statement, so let me explain. The point of a ‘rate hike’ is not to make the cost of money (interest rates) go up, but to drain excess money from the system. That’s why a rate hike cycle is called a ‘tightening’ cycle; because it is making the amount of money available for lending to shrink, or for conditions to become tighter. The same as if you don’t have quite enough money at the end of the month, things are tight.
This means that the interest rate is the derivative, and the amount of money is the main driver. You don’t set interest rates, you control the amount of money in the system, and the interest rates follow along. They are the result, not the cause.
Or at least that’s how it used to be. But not any longer.
In the past, when the Fed ‘hiked rates’ what it actually did was drain money from the system. Money out = interest rates up.
Now when the Fed hikes rates it removes zero money in the system, and this is why a rate hike is not actually a rate hike at all, but the opposite because it leaves 100% of the money in the system but raises the amount that banks and other financial institutions can charge you for new loans and outstanding credit.
How did we get to this ‘upside down world’ where a rate hike increases money?
To understand let’s be sure we are clear on…
Understanding The Fed’s Endgame Is Key To Protecting Your Wealth
PREVIEW by Chris MartensonExecutive Summary
- Why the Fed’s rate hikes are not actual “hikes”
- The new debt issuance directly or indirectly enabled by the Fed is staggeringly large
- Why the Fed’s intervention in the financial markets is creating worrisome instability
- As the risks mount, what should the concerned investor do?
If you have not yet read Part 1: The Federal Reserve Is Destroying America available free to all readers, please click here to read it first.
When Is A Rate Hike Not A Rate Hike?
The Fed keeps talking about raising interest rates, but they really aren’t doing any such thing. In fact they are doing the opposite.
I know that’s a controversial statement, so let me explain. The point of a ‘rate hike’ is not to make the cost of money (interest rates) go up, but to drain excess money from the system. That’s why a rate hike cycle is called a ‘tightening’ cycle; because it is making the amount of money available for lending to shrink, or for conditions to become tighter. The same as if you don’t have quite enough money at the end of the month, things are tight.
This means that the interest rate is the derivative, and the amount of money is the main driver. You don’t set interest rates, you control the amount of money in the system, and the interest rates follow along. They are the result, not the cause.
Or at least that’s how it used to be. But not any longer.
In the past, when the Fed ‘hiked rates’ what it actually did was drain money from the system. Money out = interest rates up.
Now when the Fed hikes rates it removes zero money in the system, and this is why a rate hike is not actually a rate hike at all, but the opposite because it leaves 100% of the money in the system but raises the amount that banks and other financial institutions can charge you for new loans and outstanding credit.
How did we get to this ‘upside down world’ where a rate hike increases money?
To understand let’s be sure we are clear on…
by
charleshughsmith
Executive Summary
- The repercussions of the Fed's Free Money Machine
- Why debt-funded state control stagnates productivity
- The importance of the 8-year cycle
- What should guide investors' focus and decisions
If you have not yet read Part 1: How Long Can The Great Global Reflation Continue? available free to all readers, please click here to read it first.
In Part 1, we asked these questions: can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?
In the near-term, we asked: is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely?
Let’s start by looking at the mechanism that funds the government’s deficit spending, i.e. its ability to borrow and spend enormous sums of money year after year.
The Free Money Machine
The state can afford to continue or increase fiscal stimulus (deficit spending) because the central bank (the Federal Reserve) has created what amounts to a free money machine. Here’s how the machine works.
The federal government issues $1 trillion in new bonds to fund another $1 trillion in deficit spending. The central bank (Federal Reserve) creates $1 trillion with a few keystrokes, and buys the $1 trillion in bonds with newly created money.
The Federal Reserve earns interest on the $1 trillion in bonds it now owns, but it returns this income to the Treasury, minus the Federal Reserve’s relatively modest expenses of operation. Let’s say the bonds carry an interest rate of 2.5%. The government pays the Federal Reserve $25 billion in annual interest, and the Federal Reserve returns $20 billion annually, so the net cost of borrowing and spending $1 trillion is an insignificant $5 billion.
If this isn’t entirely free money, it’s extremely close to free money.
So in ten years, the Federal Reserve owns $10 trillion more in federal bonds (assuming the bonds are long-term and didn’t mature).
It's no wonder that some economist propose…
Prepare For The Great Global Contraction
PREVIEW by charleshughsmithExecutive Summary
- The repercussions of the Fed's Free Money Machine
- Why debt-funded state control stagnates productivity
- The importance of the 8-year cycle
- What should guide investors' focus and decisions
If you have not yet read Part 1: How Long Can The Great Global Reflation Continue? available free to all readers, please click here to read it first.
In Part 1, we asked these questions: can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?
In the near-term, we asked: is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely?
Let’s start by looking at the mechanism that funds the government’s deficit spending, i.e. its ability to borrow and spend enormous sums of money year after year.
The Free Money Machine
The state can afford to continue or increase fiscal stimulus (deficit spending) because the central bank (the Federal Reserve) has created what amounts to a free money machine. Here’s how the machine works.
The federal government issues $1 trillion in new bonds to fund another $1 trillion in deficit spending. The central bank (Federal Reserve) creates $1 trillion with a few keystrokes, and buys the $1 trillion in bonds with newly created money.
The Federal Reserve earns interest on the $1 trillion in bonds it now owns, but it returns this income to the Treasury, minus the Federal Reserve’s relatively modest expenses of operation. Let’s say the bonds carry an interest rate of 2.5%. The government pays the Federal Reserve $25 billion in annual interest, and the Federal Reserve returns $20 billion annually, so the net cost of borrowing and spending $1 trillion is an insignificant $5 billion.
If this isn’t entirely free money, it’s extremely close to free money.
So in ten years, the Federal Reserve owns $10 trillion more in federal bonds (assuming the bonds are long-term and didn’t mature).
It's no wonder that some economist propose…
by
Chris Martenson
In this week's Off The Cuff podcast, Chris and John Rubino discuss:
- Sovereign Sabre-Rattling
- Suddenly, the world became a lot less safe
- Market Misdirection
- The central planners are doing their utmost to paint a positive picture
- The Era Of Easy Money is Over
- Debt-funded stimulus no longer results in an increase of GDP
- How This All Will End
- Exploring the likely pins that will pop this "mother of all bubbles"
Chris and John look at the disconnect between world events and stock prices and urge folks not to misled: risk is high, and getting higher. There is *no* rational reason for the current price levels in financial markets — only gobs and gobs of liquidity being force-fed into the system by the world's central banks.
But the data is increasingly showing that the era of "easy money" we've lived under since the Great Recession has reached its inevitable terminus. Shoving more debt into the system is no longer boosting GDP. We are now simply blowing bigger asset bubbles that will monumentally destructive when they burst — as they must.
Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
Off The Cuff: The Era Of Easy Money Is Over
PREVIEW by Chris MartensonIn this week's Off The Cuff podcast, Chris and John Rubino discuss:
- Sovereign Sabre-Rattling
- Suddenly, the world became a lot less safe
- Market Misdirection
- The central planners are doing their utmost to paint a positive picture
- The Era Of Easy Money is Over
- Debt-funded stimulus no longer results in an increase of GDP
- How This All Will End
- Exploring the likely pins that will pop this "mother of all bubbles"
Chris and John look at the disconnect between world events and stock prices and urge folks not to misled: risk is high, and getting higher. There is *no* rational reason for the current price levels in financial markets — only gobs and gobs of liquidity being force-fed into the system by the world's central banks.
But the data is increasingly showing that the era of "easy money" we've lived under since the Great Recession has reached its inevitable terminus. Shoving more debt into the system is no longer boosting GDP. We are now simply blowing bigger asset bubbles that will monumentally destructive when they burst — as they must.
Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
by
Chris Martenson
In this week's Off The Cuff podcast, Chris and John Rubino discuss:
- The Coming Debt Explosion
- Really? We're going to try to add more??
- Pension Time Bomb
- Going off sooner than most expect
- The Evil Fed
- It's policies are at the root of our economic predicament
- The Revolution Is Brewing
- Continental Europe will see the next iconoclast elected
The only thing more frightening than the massive overburden of debt weighing on today's economy is the recent trial balloon that we need to add a bunch more in order to spark economic growth. Chris and John slam this wrongheaded thinking, and direct our attention to the damage the effects of already having too much debt is wreaking on our future prospects.
Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
Off The Cuff: Dying From Debt
PREVIEW by Chris MartensonIn this week's Off The Cuff podcast, Chris and John Rubino discuss:
- The Coming Debt Explosion
- Really? We're going to try to add more??
- Pension Time Bomb
- Going off sooner than most expect
- The Evil Fed
- It's policies are at the root of our economic predicament
- The Revolution Is Brewing
- Continental Europe will see the next iconoclast elected
The only thing more frightening than the massive overburden of debt weighing on today's economy is the recent trial balloon that we need to add a bunch more in order to spark economic growth. Chris and John slam this wrongheaded thinking, and direct our attention to the damage the effects of already having too much debt is wreaking on our future prospects.
Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
by
Chris Martenson
Executive Summary
- The gigantic predicament we all face
- What you should do, as a concerned individual
- What WE should do, as a society
- Contributing to the new narrative
If you have not yet read Part 1: Mad As Hell available free to all readers, please click here to read it first.
It simply has to be said; there appears to be little to no public appetite for facing reality.
At least not without some sort of a calamity or forcing function to press the issue that will wake up enough people and call out what leadership actually exists to finally step up and begin to deliver.
The many predicaments and extreme complexity require astonishingly great leadership to address and there’s really none of that to be found anywhere at the moment.
So we must adopt a two prong approach in our lives to both deal with the coming calamities and lay the groundwork for the next stage of things.
As it stands right now, the central banks are mainly interested in propping up the asset markets which is only serving to enrich the already stupendously rich with a few minor scraps for enough upper and middle class people to keep them content to play along. While this is being done, enormous imbalances are being created even as the underlying structural issues remain unaddressed.
Some of these are even dead simple, single factor financial issues, which should be among the easiest to detect and address yet these to remain unexamined and unaddressed. Examples include exponentially increasing debt-per-capita in Japan (goosed by demographics) and pensions being utterly gutted by too-low interest rates.
If the simple math of these situations is still too difficult and complex to allow for any sort of proper response, we have to then conclude that the more subtle and intractable and larger issues we face are even further out of reach.
Here I am talking about needing to…
Fixing The Future
PREVIEW by Chris MartensonExecutive Summary
- The gigantic predicament we all face
- What you should do, as a concerned individual
- What WE should do, as a society
- Contributing to the new narrative
If you have not yet read Part 1: Mad As Hell available free to all readers, please click here to read it first.
It simply has to be said; there appears to be little to no public appetite for facing reality.
At least not without some sort of a calamity or forcing function to press the issue that will wake up enough people and call out what leadership actually exists to finally step up and begin to deliver.
The many predicaments and extreme complexity require astonishingly great leadership to address and there’s really none of that to be found anywhere at the moment.
So we must adopt a two prong approach in our lives to both deal with the coming calamities and lay the groundwork for the next stage of things.
As it stands right now, the central banks are mainly interested in propping up the asset markets which is only serving to enrich the already stupendously rich with a few minor scraps for enough upper and middle class people to keep them content to play along. While this is being done, enormous imbalances are being created even as the underlying structural issues remain unaddressed.
Some of these are even dead simple, single factor financial issues, which should be among the easiest to detect and address yet these to remain unexamined and unaddressed. Examples include exponentially increasing debt-per-capita in Japan (goosed by demographics) and pensions being utterly gutted by too-low interest rates.
If the simple math of these situations is still too difficult and complex to allow for any sort of proper response, we have to then conclude that the more subtle and intractable and larger issues we face are even further out of reach.
Here I am talking about needing to…
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