We’ve covered a wide range of topics this week. Taxes… health… our relationships. They’re all concepts that lead us to stronger Know-How, Liberty and Connections – the components of our beloved Triad.
But what follows is perhaps our scariest and most important message.
Your wealth… and therefore your Liberty… is on the line.
You see, we’re convinced we’ve uncovered what will finally stop this raging bull.
For months – if not years – analysts and investors have been quietly slapping the bull in its fat hind end by convincing themselves that all is well.
Because they don’t see danger ahead, it must not exist.
But there is trouble stirring… big trouble.
A simple chart below will prove it.
And just as we’d expect, the fat-fingered Federal Reserve is at the center of what’s likely to come.
The Chart of the Decade
Get this. During past economic slowdowns, the Fed helped restore things by cutting its key interest rate by an average of five percentage points.
In 2007, for instance, Bernanke cut the rate from just over 5% to nearly 0%. In 1999, the rate went from 6.5% to 1%. Prior to that, rates went from just over 9% to 3% during the crisis of the late 1980s.
But those sorts of cuts would be impossible right now. After all, the Fed’s rate sits at just 1.42% today.
If dramatic action were needed right now – or anytime within the next few years, given the current pace of rate hikes – the Fed would be in big trouble.
It would run out of ammo far quicker than the bad guy.
We’d all suffer.
If it happens, the Fed would need to contemplate doing what so many other central banks have done… going negative.
But here’s the thing. It’s what nobody is talking about.
We’re already there.
Take a look at this chart.
It shows us that when the rate of inflation is subtracted from interest rates – giving us a “real” interest rate – rates are actually lower now than they were two years ago.
In spite of the Fed’s tepid interest rate hikes, it’s actually cheaper to borrow today than it was in 2016.
The phenomenon has created quite the conundrum for the Federal Reserve.
If things go south… they’re going to go south in a hurry.
Warning: Dangerous Curves Ahead
Thanks to Larry Summers’ former role as secretary of the treasury, his name is on a lot of our cash. After helping to guide the economy through the Great Recession, he knows a thing or two about manipulating the economy.
He’s not optimistic about what’s ahead.
“We are living in a singularly brittle context in which we do not have a basis for assuming that monetary policy will be able as rapidly as possible to lift us out of the next recession,” he told the press this week.
If Yellen and her assumed successor, Jerome Powell, want to take real rates back into positive territory, they’ll need to raise their benchmark rate by at least 1% over the next year – and that’s assuming inflation stays low.
All signs, the Fed admits, show that prices are about to rise… quickly.
If it happens – if inflation takes off and scratches away even more of the effects of the Fed’s rate hikes – the rising stock market could quickly become its own worst enemy.
A few smart folks are calling it a “melt-up.” They’re not wrong. They’re rightfully nodding their heads to the Goldman Sachs claim that financial conditions are looser now than they were when the Fed starting raising rates back in 2015.
But here’s what the melt-up crowd is missing.
As a new Fed chief struggles to contain the fallout, the critical monetary agency will melt down. The Federal Reserve will finally lose the power it’s wielded for the last century.
We’re already seeing it.
A thorough review of the minutes from the Fed’s December meeting show that several members of the group are quite interested in restoring the agency’s power by exploring alternative forms of manipulation.
From what our sources tell us, everything from directly going to negative interest rates to doubling down on the Fed’s entrance into the mortgage game is on the table.
But what’s most interesting of all comes to us from a prominent finance professor at Duke. Campbell Harvey argues the best way out of this mess is for the Fed to launch a new cryptocurrency of its own.
Not only would this new form of digital money give the mongrels in Washington a fresh way to manipulate the economy by instantly adding or subtracting from our accounts… but it would open the door nice and wide for negative interest rates.
Fed officials have already begun studying the idea.
So instead of pumping a fist as the Dow hits fresh highs or blindly following the financial press that celebrates each new convulsion from the dying Fed, keep an eye on that chart above.
If real interest rates remain low – or, worse, continue to fall – we’re in big trouble.
We’ll see one of the world’s most powerful agencies struggling for power. We’ll see the economy begin to eat itself. And we’ll see the money in our pocket disappear… quite literally.
For our in-depth report on the situation and our five-step solution, click here.
This could be the biggest economic event in decades. And it’s all threatening to happen very soon.