Posted Jan 10, 2023 by Martin Armstrong
Sometimes you need to look behind the curtain before you understand the real trend. It is true that Federal Reserve officials are committed to fighting inflation and expect higher interest rates to remain in place until more progress is made, according to minutes released from the central bank’s December meeting. Also what has been reported is that at that meeting, policymakers expressed the importance of keeping the restrictive policy in place while inflation holds unacceptably high.
Now let’s look behind the curtail for just a peek. War ALWAYS impacts interest rates and they traditionally rise in periods of such conflict. After Europe kept rates NEGATIVE from 2014, that means every bond they sold for 8 years is now losing money. This was the bond crisis in London and then you had Janet Yellen come out and revealed the real silent worry.
Yellen came out and proposed that the Treasury buy in long-term debt and swap it for short-term. Some were out there claiming the Treasury was competing with the Fed as a second central bank. That just illustrated how much they do not understand what is going on or even how the monetary system works. The proposal was NOT another QE. The Treasury cannot create money as can the Fed. She was talking about a SWAP because the long-term debt is in crisis mode with the coming war. Smart players want to swap long-term for the short-term.
China has been dumping bonds since late 2021 as Biden has been claiming the US will defend Taiwan. I can confirm that under EVERY possible military play, the US will lose. I have reported this before. The US cannot defeat China – PERIOD! With China now selling off US debt and shifting to gold, they are seeking to insulate themselves from any Western currency since Biden violated every international law to impose sanctions on Russia. China elected Xi Jinping because Pelosi when to Taiwan just before the election confirming that we are headed to war.
Against this backdrop, the Fed CANNOT lower interest rates. This is NOT 100% about inflation anymore. The Fed realizes that the Biden Administration is determined to create World War III. As we are heading into a war they must adopt a war posture as well. Hence, interest rates will remain firm because not just inflation driven by shortages, but by the fact that the long-term liquidation continues, and lowering interest rates would now cause a capital crisis when staring war in the eyes.