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The Great Rate Hike Hoax – Ep. 116

  • Here we go again; Janet Yellen was on Capitol Hill testifying about the banking system
  • Forget about all her comments about how solvent the banking industry is – of course it’s not
  • The banking system is more vulnerable and more highly leveraged than before the bailout
  • I am focusing on what she did or did not say about the Fed’s intentions to raise rates in December and how the markets reacted
  • Headlines following the testimony were about the probability that the Fed will raise rates in December
  • The December meeting will be a live meeting with a rate hike on the table
  • The official probability of a December rate hike rose from 50% to 60%
  • When the Fed did not raise rates in October they removed language referencing concerns about international markets
  • This was interpreted as a more hawkish stance on the part of the Fed
  • The global economy was used as an excuse, but the Fed had no intention of raising rates in October
  • In December when it doesn’t raise rates, it’ll use another excuse
  • The markets wants to believe that the Fed will rates, and as soon as Yellen’s comments were released, the dollar soared and gold tanked
  • Let’s look at what Janet Yellen actually said: first I am going to go to a Reuters story, Fed’s Yellen sees possible December rate rise
  • That’s all it takes, just the mention of a possibility makes everybody jump to the conclusion it is going to happen
  • Here’s Yellen’s quote directly from the artice:
  • “What the committee has been expecting is that the economy will continue to grow at a pace that is sufficient to generate further improvements in the labor market and to return inflation to our 2 percent target over the medium term,”
  • “If the incoming information supports that expectation then our statement indicates that December would be a live possibility.”
  • She is saying, if we get the improved data we’re expecting
  • The labor market has been weakening and the last two jobs numbers have been quite weak
  • Yellen says it is possible if we get improvements we expect we will raise rates
  • Anything is possible… it is more probable that she is not going to raise rates in December
  • She actually says it’s a long shot
  • She’s been saying this all year and it has not meant anything
  • Reuters omitted from the article that Yellen followed up the above statement by reiterating that at this point, the Fed still has not made up its mind
  • Another story from CNBC:Janet Yellen: December rate hike a ‘live possibility’
  • Here’s a Yellen quote from this article:
  • “Now no decision has been made on that and, what it will depend on, is the [Federal Open Market Committee’s] assessment at the time. That assessment will be informed by all of the data that we collect between now and then,”
  • This implies that they intend to collect data from now until the December meeting and make their decision on that data
  • If the Fed does not know now, how different can the data be?
  • If nothing is going to change, why not make a decision?
  • Yellen’s monetary policy is to pretend to raise rates and then not do it
  • If you actually listen to what she is saying, it is far more probable that she won’t raise rates, because thus far, we have not seen an improvement in the data she is tracking
  • Even if the Fed sees improvements, they still might not raise rates
  • Here’s the one thing that Yellen is not doing: she does nothing to alter the false perception that a rate hike is likely
  • This shows me that it is by design. They are tightening by rhetoric
  • Here’s an illustration of how an interest rate hike would be disastrous
  • Freddie Mac issued its first quarterly loss ($475 million) in 4 years
  • This is significant because Freddie Mac’s profits have been reducing the deficit
  • They have been making risky sub prime loans that produce short term profits, but we know how this is going to end
  • This quarter’s loss presents the government with a bill – a bailout
  • They are losing money with interest rates still at zero
  • How much more money are they going to lose if the Fed raises rates?
  • I think it is far more likely that the Fed will continue to punt
  • So far, pretending to raise rates is working like a charm
  • Everybody believes the economy is stronger than it is and they don’s actually have to raise rates
  • Look at this week’s economic data
  • One of the most important misses was yesterday’s factory orders
  • They are down year over year for 11 consecutive months – this only happens during a recession
  • They were looking for a decline of .9, we got a decline of 1% from a downwardly revised August number
  • This will bring down Q3 GDP
  • The ADP number came in slightly below estimate of 185,000, at 182,000
  • Last month’s number was also revised down
  • Beneath the surface, we lost good manufacturing jobs and gained lower-paying service sector jobs
  • An announcement about my father’s book, “The Biggest Con”. We are not out of stock, but I am offering a new book, along with a new special offer
  • I had about 96 copies of “The Great Income Tax Hoax” (currently sold out as of 11/5) in paperback
  • This was my father’s definitive work on the history of direct taxation in the United States
  • He really educates you, giving you an understanding of how the U.S. government was meant to function
  • It is a great history you will not get in any standard textbook
  • While supplies last, you can buy it for $30.00, signed by me
  • One caveat: my father advises how to not pay income tax – I DO NOT RECOMMEND FOLLOWING THIS ADVICE
  • Buy the book because it is educational, entertaining, and to understand the reasons my father steadfastly held to his arguments
  • As a special I am offered a special package of both “The Great Income Tax Hoax” and “The Kingdom of Moltz” for $45.00
  • This offer is only good until all “Hoax” are sold