The Fed-Rate Hike: the Torpedo is Launched

Back at the end of 2008, in the heart of the crisis we now know as the Crash of ’08, Western central banks collectively engaged in perhaps the most extreme/reckless act in the modern history of our economies. They collectively took interest rates across the world to 0% or near-zero, and then held them there.

As has been explained to readers previously, such extreme interest rates are the economic equivalent of a defibrillator: a desperation-measure, intended to only be used as a Last Resort, and even then, only briefly. The cabal of Western central banks acknowledged this reality. All these central bankers promised – emphatically and unequivocally – to immediately normalize interest rates in early 2009.

Since then, seven years have gone by. During those seven years, not only have these corrupt central banks shamelessly (and recklessly) refused to honour their collective promise, interest rates have fallen even further, except in the U.S., which was already at 0%.

For seven years; the Federal Reserve has promised to raise interest rates “soon”, not to normal levels (as originally promised) but just the tiniest fraction toward normalcy. The Fed lied, serially: first Bernanke, and now Yellen. The Boy Who Cried Wolf was succeeded by The Girl Who Cried Wolf.

Even more perversely, during these seven years of lies, the Federal Reserve (and U.S. government) have continuously boasted about the “strength” of the U.S.’s Never-Ending Recovery. Forget about the fact that there was no recovery. For seven years; the Fed and U.S. government have also boasted about “10 million new jobs”. Forget about the fact that the U.S. economy has actually lost another 3 million jobs.

For seven years; the Fed boasted about a strong U.S. economy, yet still failed to honour its 2009 promise, even partially. For seven years; Fed money-printing and Wall Street gambling has pumped-up U.S. asset bubbles, yet the Fed has refused to dampen that bubble-pumping, by honouring its promise. Instead, B.S. Bernanke boasted on many occasions of the “wealth effect” that his reckless money-printing (and 0% interest rate) was having on U.S. markets.

As 2015 is at its very end, now, finally the Federal Reserve has acted belatedly to raise the U.S. interest rate, by the tiniest amount possible. And just look around the U.S. economy.

After seven years of bubble-pumping; we see the U.S. stock market bubble at an all-time high. The U.S. bond market bubble is also at an all-time high. This is supposed to be totally impossible. Everything we know about economics tells us that there could never be enough legitimate currency in any system to create a simultaneous bubble in stocks and bonds – when these are counter-cyclical markets. And both of these bubbles are much larger than at any other time in history.

Since bond prices are the inverse of interest rates; any increase in U.S. interest rates automatically drives-down the bubble-prices in the U.S. bond market. We have a term for this: KA-BOOM!

In Wall Street’s bubble stock markets; “margin debt” (i.e. leverage) soared 25% higher than any other period of reckless gambling, in the history of U.S. markets. Then the market turned. The U.S. stock market has already “rolled over”. Margin debt has now dropped by more than 10%.

What does it mean when the Fed chooses to raise U.S. interest rates after the largest stock market bubble in history has already rolled-over? We have a term for that, too: KA-BOOM!