Pay a man to make bricks… he’ll make bricks.
Pay a doctor to push drugs… he’ll push drugs.
And pay a banker to raise interest rates… he’ll raise interest rates.
That’s certainly the word we’re getting these days from the maestro of all things money, Jay Powell.
He took to the congressional stage this week to give us a bit of a tour of the nation’s money machine.
We wish we hadn’t looked.
Clearly our beloved Liberty is on the line.
“Robust job gains, rising after-tax incomes and optimism among households have lifted consumer spending in recent months,” he told the folks who get paid to make new laws.
It was simple yet giddy news.
Let’s keep the rate hikes coming!
But the truth lies in the oh-so-simple logic we outlined above. Pay a man to raise rates… and raise rates he will.
Let’s not forget who Powell really answers to.
He spent decades working for the nation’s leading investment banks. And now his employer is the bank of banks.
The Federal Reserve was created by the nation’s top bankers over a century ago, and the group continues to serve many of the same names that clandestinely formed it so long ago.
It’s not a surprise that Powell wants to keep rates moving higher… banks love rising rates.
The folks at Forbes spilled their guts on the subject this week as the rag discussed the latest round of earnings reports from the nation’s big banks [emphasis is ours]:
What really stands out is how well JP Morgan and Citigroup performed in Q2 despite 10-year yields remaining so low. It’s arguable that few analysts (and probably few of the economists at the banks themselves) would have thought 10-year yields would be in the 2.85% range this far into the year, but here we are in mid-July, and that’s basically where the yield sits.
Though shares of the financials have been punished as rates remain stubbornly low, it’s possible bank stocks could get rewarded if yields start to find more traction and revisit the 3% level. That’s where yields were briefly in May, and with the Fed still in a hiking cycle, it’s not necessarily too aggressive to think yields could potentially make it back to that level sometime in the coming months.
Like we said… pay a man to make bricks and he’ll make bricks. Pay a banker to raise rates and he’ll raise rates.
And he’ll do it despite the nation’s best interest. We’ve certainly seen the Fed do it before…
… like in 2008, when Alan Greenspan admitted the financial disaster at the feet of Americans was largely caused by the markets exposing a “mistake” in the philosophy he used during his 18-year tenure at the helm of the bank of banks.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity (myself especially),” Greenspan wrote to Congress, “are in a state of shocked disbelief.”
“I discovered a flaw,” he later told lawmakers, “in the model that I perceived is the critical functioning structure that defines how the world works.”
The What-If Scenario
It’s that so-called self-interest of lending institutions – the Fed, we remind you, is the leader of the pack – that has so many investors concerned these days.
With short-term interest rates threatening to overtake long-term rates, the markets are becoming increasingly concerned with what comes next. For nearly every time in modern history that the yield curve has inverted… a recession came next.
When the blue line falls below the black line… the bears come charging.
But we’re learning this week that Powell and his cronies at the Fed aren’t all that concerned. They tell us that all is rosy and, if anything, the economy is threatening to explode to the upside… there’s certainly no threat of a recession.
We can’t help but wonder about the Fed’s own self-interest… that it and the folks it answers to might just have some serious skin in the game. Rising interest rates, as we’ve found, are certainly good news for bank profits.
The “Secret” Goal
But there’s another chapter in this tale – a chapter that’s mainly spoken and rarely written.
It’s the fact that the Fed is desperate to raise rates, not to slow the economy but to reload its gun in preparation for the downturn that will someday come.
With rates still mired in historically ultra-low territory, if a recession started tomorrow, the Fed would have very little ammo to fire into the monster.
The few rate hikes it could enact would do as much to boost the economy as the equivalent of recent hikes have done to slow it down.
The only option would be to follow the lead of European central bankers and – dare we say it – take rates negative.
It would be pure hell for banks… and lousy job security for a Fed chief that’s barely moved into his new office.
So we say it again.
Pay a man to make bricks… and he’ll make bricks.
Pay a man to raise interest rates… and he’ll raise interest rates.
Thanks to the news out of the Fed this week, we expect a profit-stunning announcement from Powell and his team on September 26. That’s when we expect them to make a sinister move that virtually ensures the banking system will maintain its easy-money profit stream.
Unfortunately, as they work to ban America’s most popular asset, everyday investors could get slammed.
The details are too long to get into here, but they’re all included in my in-depth presentation. Click here to view it.
Keep an eye on the Fed’s next move. It’s likely to be a shocker.
Once again, our beloved Liberty is at risk.