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What I'm going to tell you is probably going to go a fair way toward upending your sense of reality and everything you know to be true, at least as far as the markets go.
Think for a second how much mental energy, how many newspaper column inches, how many magazine articles, how many minutes of airtime are totally devoted to speculating on what the U.S. Federal Reserve's going to do to interest rates.
There are journalists and cable TV pundits who spend entire careers covering the Fed. Every time the Fed's Open Markets Committee meets, it's like time stops, and every breath hinges on, "Will they raise rates? How much? How high?"
By statute, the FOMC circus must happen eight times a year, every five to eight weeks. And it's even more frequent (and more protracted) if you count the media monkey circus surrounding it, the arcane rituals of painstakingly parsing out what the Fed is "telegraphing" or how the markets will "react."
And it's all for nothing. That's right. Nothing. It's a sham…
…because the Fed does not control interest rates. And it hasn't for years now.
So who does control rates? Well, here's where it gets terrifying…
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About the Author
Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.
Since 1998 and renewal of MFN for China, the trade deficit has been driving the Federal deficit by making our economy too small to afford Federal spending. Any rise in the discount rate will simply increase the deficit. A 750 billion annual trade deficit eliminates the enterprises and demand for about 70 million jobs. The absence of taxable wages for 70 million wage earners causes national “reverse tariffs” of more than $530 billion in reduced individual Federal income taxes, $350 billion in reduced Social Security taxes, and $50 billion in reduced Medicare taxes for a total impact of $930 billion in reduced Federal revenue. Including $219 billion in reduced corporate income taxes, this all adds up to a $1.1 trillion in a reversed tariff of reduced Federal revenue from a trade deficit of $700 billion. Added to this is the $226 billion reduction in State personal income taxes with additional losses of State corporate income taxes. This is why the States are hurting. It seems that every dollar of trade deficit reduces combined Federal and State revenue by about two dollars.
The author, in my opinion, is off base. Consider that interest rates were manipulated by the federal reserve and their counter parts around the world, for what reason? The answer was to stimulate the world economies because @ that time we had excess manufacturing capacity worldwide. To a lesser extent we still have excess capacity but less so than 10 years ago. The fed has not loss control but it will be tricky to balance the inflationary forces against lessened overcapacity to normalize rates and shrink its’ balance sheet.