WHAT IS ACTUALLY HAPPENING TO THE MARKETS RIGHT NOW
A summary of the "behind the scenes" activity happening at the Fed since 2008, plus a prediction of what will come next. Feel free to ask questions.
1. FIRST, THE FED PRINTED MONEY. HERE'S HOW
The Fed would then PAY interest on excess reserves to the banks. This currently gives banks $100bb a year (roughly).
Note, the Fed did the same thing in March, 2020 with TRILLIONS of dollars. 40% of all the money printed in US history has happened since March, 2020.
2. INTEREST RATE HIKES ARE SORT OF A MYTH
So the reason the markets fell yesterday is not the interest rate hike but the "threat" of the Fed reducing the money supply. This is the real crack and the US is the crack addict. It's all money supply. Not interest rates.
So why do they even bother to raise rates? Well...
3. BTW, THIS IS WHY BITCOIN WAS CREATED
4. SO WHY ARE THEY RAISING RATES?
But now The Fed is also THREATENING to reduce the money supply by not lending to the banks on the banks excess reserves. IF THIS HAPPENS:
a) S&P goes to 3000
b) BTC goes to $15,000
c) real estate falls 20-40% (8/x) BUT....
5. THINK TEN MOVES AHEAD
6. IS THEM THREAT REAL?
7. IS THE FED STUPID OR SMART?
b) if they are SMART then they are already doing "the threat is stronger than the execution" strategy.
WHICH MEANS
8. THE SECRET WAY THEY ARE STOPPING INFLATION
The FED knows this so they will do one more rate cut (to keep the fear up) and then stop and even boost money supply or start buying bonds again. They know the stock market is more important to inflation than interest rates.
9. WHAT ABOUT SUPPLY SIDE INFLATION?
This, in fact, was/is the Fed's primary feeling about inflation. That it is mostly supply-based and will clear up. But they needed to act to calm everyone down.
10. THE TRUTH ABOUT THE FED IN THE 2008 CRISIS
The crash that lasted from November 2007 to March, 2009 was caused by a little known accounting rule called FASB 157 which forced banks to change the way they value housing derivatives, WIPING OUT ALL BANKS OVER NIGHT. And GUESS WHAT?
FASB 157 started in November, 2007 and was STOPPED in March, 2009. Perfectly bookending the last crisis. None of the literature mentions this. All of the Fed actions were somewhat meaningless (hence the creation of BTC).
I mention this to point out that the stuff we see and think on the surface is rarely the source of the real problems.
11. FEAR FACTOR
12. THE FED CAN'T REDUCE INFLATION, THE STOCK MARKET (and other declining assets) WILL REDUCE MONETARY INFLATION
We will see inflation instantly decline over the next few months (the fear worked) and the Fed will use other manipulations to drive market up (like they did in 2009) and buy mortgage bonds, maybe even corporate bonds. With inflation declining there is HUGE RISK of collapse is you also reduce the money supply.
13. THE DOLLAR WILL STRENGTHEN AS THE REST OF THE WORLD NOTES WHAT THE FED IS SAYING
Other countries investing in US Treasury Bonds lowers interest rates and gives banks more reserves.
When banks have more money, the money inevitably flows into "want" versus "need" assets (think stock market, real estate, crypto, etc).
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