Take a Hike: Federal Reserve Planning For Recession?

Last week, the Federal Reserve “raised rates”, as the mainstream financial media is apt to say. What this really means is that the Federal Raise raised the only interest rate that they have any direct control over: the rate of interest paid on excess reserves. The rate was increased from 0.5% – barely above zero – to 0.75%, a tic above zero.

In the official press release, they opine that “gradual adjustments in the stance of monetary policy” are expected to strengthen employment and increase economic growth. This can only mean one thing: inflation. The Federal Reserve is run by Keynesian dolts who believe, at core, that wealth and prosperity can be pulled out of a hat so long as the government decrees it. By “gradual adjustment”, they almost certainly refer to gradual adjustments upward in monetary inflation.

The monetary base has been stable for the past two years. In fact, the Federal Reserve has deflated the monetary base:


Raising the rate of interest paid on excess reserves is consistent with a deflationary policy. This is the right policy. This is what they Federal Reserve should have been doing all along, and what they should continue to do. If you have noticed that the dollar is gaining strength against other major foreign currencies, this is why. Other Central Banks are inflating (devaluing) their currency. This is great for Americans and for the strength of the economy.

But this policy will lead to a severe recession. Worse than what happened in 2008. Why? From the Wiki article for Austrian Business Cycle theory, we read this:

The “crisis” (or “credit crunch“) arrives when the consumers come to reestablish their desired allocation of saving and consumption at prevailing interest rates. The “recession” or “depression” is actually the process by which the economy adjusts to the wastes and errors of the monetary boom, and reestablishes efficient service of sustainable consumer desires.

Continually expanding bank credit can keep the artificial credit-fueled boom alive (with the help of successively lower interest rates from the central bank). This postpones the “day of reckoning” and defers the collapse of unsustainably inflated asset prices.

The monetary boom ends when bank credit expansion finally stops – when no further investments can be found which provide adequate returns for speculative borrowers at prevailing interest rates. The longer the “false” monetary boom goes on, the bigger and more speculative the borrowing, the more wasteful the errors committed and the longer and more severe will be the necessary bankruptcies, foreclosures, and depression readjustment.

So if the Federal Reserve intends to pursue a policy commensurate with deflation and higher interest rates, they are going to precipitate a recession.

But in the press release, they strongly hint toward adopting policy consistent with recession: monetary base inflation. Preparing to “gradually adjust” the monetary base upwards signifies that they expect a recession, as do I. But raising the rate on excess reserves is a deflationary policy. This does not make sense. Does one hand not know what the other does?

I think the hands know exactly what they are doing: trying to torpedo Trump. I think the bureaucrats working on the Federal Reserve Open Market committee are purposefully setting up the American economy for recession, so as to drag Trump down. The post-election stock market boom is doing too much to make people feel optimistic about the Trump presidency. This simply will not do for the progressive-dominated Federal Reserve.

Some people will accuse me of engaging in conspiracy theory. They are correct: I am theorizing that it’s a conspiracy by the FOMC. My main question is this: Why now? Why did the Federal Reserve choose to do this now, and not at their meeting one month ago on November 2nd? The Fed is always loudly claiming to be impartial and apolitical, concerned merely with the economic health of the average American. If they had wanted to appear impartial, they could’ve done this before the election. It would’ve sent this message: “No matter who wins, we are staying this course.”

But they waited to see who would win. So I get this message instead: “If our dear anointed Hillary had won, we would have pursued a policy of monetary stability. But because The Great Orange Despised One was elected, we will drive this economy into the dirt. Serves voters right.”

The Federal Reserve is a political institution, like all the rest. It is run not by brave and impartial economic scientists, but by political hacks with their own axes to grind. They plan on taking down Trump with a massive recessionary hatchet-job.

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