Federal Reserve Confesses Sole Responsibility for All Recessions

The comments below are an edited and abridged synopsis of an article Knave Dave

It seems that the Fed is always curtailing inflation because of financial imbalances it created or enabled. First it creates the imbalance, which causes the economy and stocks to inflate, and then it has to shoot that down by tightening into a recession.

Federal Reserve Confesses Sole Responsibility for All Recessions | BullionBuzz

The Fed does this by getting the yield curve to invert via its forced interest changes. Every recession has been preceded by a Fed-created inversion of the yield curve.

Today’s yield curve has already slipped into its penultimate inversion. First (December 3), 3-year notes started paying more interest than 5-year notes. In essence, investors were betting the economy would be better in five years than it would in three. Within weeks, 3-year notes were paying more than 7-year notes. Then they started paying more than 8-year notes, inverting the yield curve even further out. The recession indicator light comes on when they take the next step of paying more than 10-year notes. The first three all came within a month; the rest may come just as quickly.

In fact, we’re so close that one more rate increase by the Fed could pull the trigger. This is why Powell can be so reassuring about pulling back soon on targeted interest-rate increases. He knows he’s already operating with a hair trigger because of the Fed’s other tightening action in rolling bonds off of its balance sheet.

Powell recently said the Fed is watching and waiting before its next rate increase. At the same time, he suggested his balance-sheet reduction won’t end for a while (and the Fed knows that its balance sheet reduction is skewing the yield curve faster than the Fed’s targeted interest rate increases).

Those interest rate increases are now playing verbal catch-up to what the balance sheet reduction is doing in the open market. In other words, the balance sheet reduction is pulling the Fed’s targeted interest rates up, regardless of what is says, so it is pressed to state that it intends an increase just to keep up with the effects of balance-sheet reduction.

Dave discusses the Fed fix is almost in; gunsmoke and mirrors; and who’s your daddy.

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