The Federal Reserve is once again itching to raise interest rates.
The problem is, it goes against almost every economic indicator out there. Plus, it seems like the Fed is operating in a vacuum, not taking into account the ramifications on its policy relative to all the countries’ central banks that are holding interest rates at 0 or even negative.
In a recent Barron’s, there was an article about how the job market isn’t working in the U.S. And it’s not because interest rates are too low. Productivity is down. Non-farm payrolls came in 30,000 short of expectations, which is about 30 percent shy of the mark.
And what isn’t talked about is the fact that workers’ hours have fallen… again. Down from 34.4 hours a week to 34.3 hours a week. That may not sound like a lot, but according to Glaskin Sheff Chief Economist David Rosenberg it’s the equivalent of cutting 300,000 jobs.
This is the real economy that regular folks live in every day.
The sheer fact that workers’ hours are at multi-year lows show how many displaced workers and underemployed workers (people qualified for jobs that require more education, skill and experience) there are in the U.S. These numbers show that the only job growth is coming from lower paying jobs, not middle class quality jobs.
This is a real problem… yet the Fed wants to raise rates.
The only reason the Fed wants to raise rates is because it needs to get some room so it can cut rates again.
There can be no other purpose. The U.S. economy is one of the strongest on Earth, but that’s not saying much right now because it’s woeful. Raising rates will throw a giant wrench into the workings of the bond market and the stock market.
There will be a financial reckoning if this happens in September or October. The NASDAQ just hit a historic high, yet global growth is abysmal. If the Fed pops the bond and stock market bubbles simultaneously, hold on to your hats.
“The Dow is off…”
When Alan Greenspan first got the job as Fed chairman, he decided to take the bull by the horns and raise interest rates. He had a morning flight that didn’t land until after the markets closed — this was a time before the internet or mobile phones.
When he got off the plane he called his assistant and asked, “How did the market take it?”
The assistant replied, “The Dow is off 5.”
Greenspan said, “Well, 5 isn’t bad.”
The assistant said, “No, 500.”
That was Black Monday in 1987. Stocks fell 22 percent in one day.
If the Fed continues with its plan, it will mean even more momentum toward the shadow economy that’s developing. If you want to call it the Gig Economy, that’s fine. But the fact is, it is not full employment and it’s substandard for many people looking for security and a solid job. It ranges from drug dealing to Uber to whatever else people can do to earn a living when businesses only care about earning the biggest profit possible and not returning value to their workforces. One billionaire doesn’t have the same economic impact as 1 million people spending an extra $1,000.
But banks and politicians are in it for themselves. They’re pushing us closer to the precipice, without a safety line. That’s why it’s crucial to make sure you have pared down your debt to only fixed-interest loans and you have bought gold and silver to protect your wealth. If you own stocks, only stick with durable, long-term investments in solid blue chips; they may be the only ones to survive a massive exodus to safety.
If the Fed moves it will unleash a global shock wave that could set the global economy back years and lay waste to people’s investments.
Don’t be one of them.
— GS Early