Wall Street amazes me.
Despite the current economic situation those at the Big Banks on Wall Street seem to think their words will just magically create financial stability for all but, this is what’s happening.
The Federal Reserve’s recent interest rate hikes and pivot towards a more hawkish monetary policy have caused Wall Street to panic, as the evidence of an impending recession is starting to mount. Consumers are seeing energy shares leading the retreat, bonds reclaiming their place as a recession hedge, and long-dated debt pulling 30-year yields below 3.5%.
Whether the Fed raises rates or not, a recession is inevitable.
Wall Street’s Recession Reaction
Wall Street is finally reacting to the warnings of an impending recession, but it’s doing so in a hilariously misguided way.
Read this. This is what I’m talking about.
And it’s how people lose faith in a currency. Just change the rules of the game and somehow it will all be alright.
Here’s what the BoA’s Head of Global Economics suggests…
Ethan Harris, Head of Global Economics for BoA writes:
“A question that is on many central banks and investors’ minds is why “Must inflation be brought down all the way to 2%?” Our view is there is nothing special about 2% other than the fact that it is the official target in many countries…The idea was to restore anti-inflation credibility by making it abundantly clear when policy was failing.”
We’ve seen similar urgings from both the Wall Street Journal and from think tank economists in recent months. To put it simply, this will worsen the situation.
The idea that raising inflation targets is a good idea reflects a desperate attempt to escape reality.
The Fed’s policies have caused an unsustainable bubble. Consumers and businesses are already overextended with debt, and raising inflation targets will only make matters worse by encouraging even more borrowing as people try to keep up with rising prices. And, it will eventually lead to an increase in the cost of goods and services, causing people to cut back on spending.
They must recognize their mistakes and take steps to avoid repeating them. Massive amounts of continuous money printing have already set in motion a self-destructive cycle of debt accumulation, asset bubbles and misallocation of capital that will eventually lead to a recession no matter what policy moves it takes.
Until then, enjoy. Sit back and watch as Wall Street continues to panic over an inevitable Recession.
Others say that raising interest rates will save the day.
Bloomberg comments:
“It’s like people are saying we should celebrate when the Fed raises rates because there will be fewer economic problems that need dealing with,” said Sandra Chir, head of macro strategy at Academy Securities.
The Fed is raising rates in an effort to curb the debt-fueled expansion of the economy.
As rates increase, companies will find it increasingly difficult to make loan payments on time and may ultimately default on their debt. This could lead to a cascade of bankruptcies and rising unemployment – two key factors that signal a recession is nearer.
Unfortunately, no matter what the Federal Reserve does, the US economy is headed for a recession in the near future.
The only question is, will it be a mild recession or a devastating one?
The Shift Away From Risk Assets Happens in Every SuperCycle Bear Market
It’s ironic that Wall Street is still trying to cling to the idea that raising interest rates, or adjust inflation targets will magically solve everything. That’s like a gambler doubling down on their bet with a losing hand…
The shift away from risk assets is evident in the market’s recent performance — energy shares are leading the retreat, bonds reclaiming their place as a recession hedge, and long-dated debt dragging 30-year yields below 3.5%.
And now we are seeing continuous rises in the price of gold and silver…
Jim Wyckoff of Kitco.com noted that the milder-than-expected U.S. inflation report caused gold and silver prices to surge, while also rallying stock and financial markets, tanking the U.S. dollar index and providing support for those who advocate a more cautious approach from the Federal Reserve’s aggressive monetary policy stance.
It seems that the only people celebrating a recession-proof strategy are those investing in gold and silver. After all, as the Federal Reserve continues to raise interest rates and mule over inflation numbers, precious metal prices have skyrocketed – much to the dismay of Americans struggling with rising costs of goods and services. Meanwhile, those betting on gold and silver are smiling all the way to the bank, as their investments now appear recession-proof.
It doesn’t make sense to stay in risky investments when the Fed is making moves that indicate an impending recession.
Central Banks’ Financial Perpetual Motion Machine
It’s almost comical to think that Central Banks believed they could create a perpetual motion machine with their financial policies — as if the laws of economics didn’t apply in this case.
How does the Fed truly know what interest rate will do to spur economic growth?
The answer is, they don’t.
So no matter what the Federal Reserve does — pivots, raises interest rates, or adjusts its inflation targets — a Recession is imminent and we can’t stop it.
They thought that endlessly printing money and lowering interest rates would be enough to stave off disaster, never realizing the consequences of such actions:
- massive inflation
- unrelenting demands from public and private debt payments
- disciplining hedge fund managers to wage war on already starving banks through the derivative market.
It’s as if they have been playing a game of poker, betting everything on one last hand. Unfortunately, the house always wins in the end — and it looks like the Recession is about to be revealed.
Recession is Inevitable Despite the Fed Raising Interest Rates and Wall Street Rhetoric
It’s like the Federal Reserve is trying to use a squirt gun to put out a raging forest fire — it’s just not going to work. The Recession monster has been slowly building for years, and now it’s ready to be unleashed.
No matter how much the Fed raises interest rates or tweaks monetary policy, they won’t be able to stop what’s coming.
The Recession train has already left the station, and there’s nothing anyone can do about it now.