The magicians at the Fed and the US Treasury have been forced to recognize that their “transient” inflation is, in fact, quite “sticky”. And with the inflation elephant Now recognized by the high finance circus, Treasury yields continue to climb, recently reaching 4.7%, the highest since November. The Fed is stuck: it must raise interest rates to control inflation and make Treasury bonds more attractive. But the Fed can't afford higher rateswith the already unsustainable cost of servicing existing debt and loan-dependent industries teetering on the brink.
Once the 10-year Treasury yield exceeds 5%, the bond market enters particularly dangerous territory, endangering sectors like the automobile market and commercial real estate which heavily dependent on debt. Without good options, the Fed will be forced to print money one way or another to stimulate borrowing, thereby turning the inflationary creek it has created into a raging river of dollar destruction.
The 10-year Treasury yield jumps to 4.7%, its highest level since November 1 pic.twitter.com/yObR8D4uY0
– Bar Chart (@Barchart) April 26, 2024
The only way the Fed can control inflation is to keep interest rates so high that everything collapses. Jamie Dimon himself sees 8% interest rate is necessary to tame America's Fed-fueled inflationary beast – but with an economy addicted to the low cost of borrowing, it would make loans unaffordable for entire sectors of the economy that cannot do without them.
A serious implosion of commercial real estate would certainly have repercussions on banking sector, triggering a chain reaction. Meanwhile, with no chance for the United States to rein in its spending and put its public finances in order, the interest on the American debt can already only be paid with even more borrowed money.
This doesn't even take into account the over-indebted masses with their broken down cars, their mortgages on homes that need repairs, and their credit cards that they use to fund their basic expenses. Neither the industries most dependent on loans nor the average American can keep up with the rising costs of goods, materials and energy. But they also can't sustain 8% interest rates. It is give the Fed an impossible mission — raise rates to the levels necessary to truly control inflation or allowing inflation to run amok by printing fresh money to keep borrowing artificially affordable will either lead to disastrous results for the economy.
The COVID M1 Hockey Stick (Federal Reserve Bank of St. Louis)
The truth is that uncontrolled spending and continued COVID-related stimulus means that inflation will not disappear simply because of a few small rate hikes, as Peter Schiff has repeatedly pointed out, and as writes Dimon in his recent work. letter to shareholders:
“The enormous budgetary expenditures, the trillions needed each year for the green economy, the remilitarization of the world and the restructuring of global trade – all this is inflationary. »
So even though the 2024 rate cuts might be delayed, the Fed knows it might be able to trigger the bond market bomb by printing money. And the central bank will do everything in its power to avoid an implosion in the short term – even if it means destroying the dollar in the long term. This is especially true today, as the Fed does not want to anger the outgoing president in an election year, giving him added momentum to make the economy as rosy as possible, at least until the next presidential cycle begins. This means rate cuts or full QE to avoid a bond market collapseand worry about hyperinflation later.
Without gold to preserve your purchasing power, you could be about to see what happens to your money when the Fed is forced to turn on the money printers when inflationary pressures are already high. it's itching to explode in a way not seen in years. And if the Fed holds firm and refuses to cut rates this year, or even raise them to anywhere near the levels it needs to avoid killing the dollar, hold on to your hats – and your gold – and try not to get caught out by any of the drops. dominoes.
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