How to Play the Federal Reserve’s Epic Wrong Way Gamble

2 | By Shah Gilani

Putting aside the Federal Reserve’s battles with various presidents, its ability to affect a coup d’état if it chooses, and whether it should exist at all, the facts are that it does exist and it does seriously impact America.

Only, now it’s gone too far.

The Fed’s painted itself and America into a corner, one that no one has any idea of how we’ll get out.

It exists because its creators and their henchmen hoodwinked politicians and Congress in 1913 into legislating it into being ceded the extraordinary power to own and control America’s money supply.

Also, it could save floundering banks that its founders owned and, more importantly to politicians, could absorb runaway government spending.

How the Fed protects and fosters the banks that created it and have morphed into the too-big-to-fail (TBTF) banks we recognize today isn’t the story here.

Here’s what the Fed’s fundamental, collective, and eventually crowning mistakes mean for America and the world, and more importantly, what to do to profit from where we’re headed…

The Fed Is a Political Animal, Plain and Simple

The story here is how the Fed plays politicians.

It does that by either increasing the money supply through various methods including having as much of it printed by the U.S. Treasury as it wants.

Then the Fed distributes the money through its banks to help absorb government debt. Even more lately, it uses digital accounting to credit banks for the Treasuries, mortgage-backed securities (MBS), and other instruments that it buys from them and parks on its fake balance sheet.

During the financial crisis the Fed bought MBS and Treasuries from banks to get the former illiquid and underwater securities off banks’ balance sheets.

Plus, the Fed wouldn’t have to write them off and bought Treasuries that the banks bought in the open market from them at even higher prices (thanks to declining yields the Fed orchestrated)

All these shady practices were done so TBTF banks could profit from the self-perpetuating, increasingly profitable Treasury trading game.

The byproduct, as the uninitiated might call it, has been the Obama administration’s and now the Trump administration’s ability to add to deficits and the country’s massive debt load by having the Fed absorb most of the debt that the Treasury floats.

The two most recent administrations are not the only ones to play the Fed.

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Most administrations have played the game, because it’s a game that benefits the Fed’s banks as well as politicians who don’t want to raise taxes or curb spending and ply the reciprocal of those twin temptations in their constant pandering to voters.

That’s what makes the Fed so political: Pandering to politicians who pander to voters is in their DNA.

The Fed’s DNA developed a strain of cancer in the 1990s that manifested itself in the Fed manipulating rates too low for too long.

This beginning caused “irrational exuberance” and the tech wreck, then the build-up of insane leverage in housing and mortgage markets, which spawned the financial crisis, and then the self-perpetuating lowering of rates to an almost permanent far too low level to try and cure the cancer that is the Federal Reserve System.

There is no way out.

Make no mistake about it, the Fed doesn’t want to hear it from President Trump. They were going to have to lower rates anyway. They just don’t want to be “controlled” or have their “independence” threatened.

What on the outside looks like a power-play by the Fed, having their surprisingly rogue mouthpiece, William Dudley, suggest that the Fed kills President Trump’s reelection chances by not lowering rates, or worse, raising them, was a profound opening of the Fed curtain.

But, that’s not the real story here.

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The story is that the Fed, despite the President’s admonishments, was going to have to lower rates anyway. They already reversed the corrective course towards “normalization” (of rates) that they began last year when the stock market fell 20% by Christmas and a mild financial panic overcame investors.

Meanwhile, European economies were faltering, and the European Central Bank announced that it was ready to lower rates to help. At the same time, China’s economy was backsliding from trade war impacts with America and the yuan began to lose value relative to the dollar, a natural occurrence when one economy falters while its trading partner’s economy remains robust.

As the euro and yuan fall relative to the U.S. dollar, the dollar’s relative strength makes U.S. exports more expensive and impacts American corporations’ earnings negatively.

When companies translate overseas earnings into dollars, as the dollar rises, it takes more earnings to buy more dollars; hence, earnings are negatively impacted.

The Fed saw what was happening and needed to lower rates to offset the strengthening dollar anyway.

President Trump calling out the Fed for not lowering rates when it was going to have to anyway was a brilliant political move to make it look like the President was helping the economy and investors.

The Fed and Bill Dudley didn’t want the world to think that the President was pushing them around when they lowered rates. They should have just said that the President isn’t the reason we’re lowering rates; it’s the impact of global conditions on the United States economy that require us to adjust domestic rates.

If they were smart, which obviously they aren’t, all they would have to say in keeping with the longstanding narrative that they’ve honed to perfection, which by the way is FAKE, is that they need to lower rates to spur inflation back towards their 2% target, because inflation data is going the wrong way.

Why would inflation be falling further from the Fed’s 2% target? Because the strong dollar makes imports cheaper and that lowers inflation pressures.

Of course, the Fed can’t say it because it implies that the Fed is manipulating the dollar lower, and that’s not one of its “mandates.” And, if the U.S. is manipulating its currency lower, other countries would be justified in doing the same. That simple action would lead to currency wars, which the Fed doesn’t want to get blamed for.

So, it sticks to its inflation needs to be 2% narrative.

And that story is the lie that Americans have been fed.

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Trying to get inflation to 2% justifies the Fed artificially lowering rates, essentially permanently, or until we see 2% inflation for an extended period.

The narrative is a lie, because we are nowhere near 2% inflation and aren’t going anywhere near there any time in the foreseeable future.

The inflation narrative is cover for lowering rates to help monetize ballooning federal deficits and debt. It’s a fake narrative that justifies the Fed pandering to politicians, so they don’t have to raise taxes.

What very few people realize is that 2% inflation isn’t in the foreseeable future because structurally America and the world has changed.

Technology advances keep productivity high and labor costs low. Globalization means goods are produced cheaply wherever labor and materials are cheaper. The price of oil is stable and under constant pressure from technological advances in production methodologies, including fracking for shale oil, which transformed America into being 100% oil self-sufficient.

And, of course, there’s China. The rise of China as an economic power, manufacturing and producing millions of goods cheaply for export keeps prices down.

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Behind China is India and Korea and Vietnam, and every other country in the world that wants their exports to be cheap enough to command market share.

We’re not going to see 2% inflation any time in the foreseeable future and the Fed knows that.

But, that’s their narrative, that’s the lie they use to justify manipulating rates lower for longer.

Where does it end? When does it end? How does it end? And How can you profit from the inevitable?

I’ll tell you on Friday and give you specific trades and positions to get into to turn this tragedy into your good fortune.



2 Responses to How to Play the Federal Reserve’s Epic Wrong Way Gamble

  1. Kay Conler says:

    You are brilliant. Best explanation I have ever read. Will watch for trades Friday and follow your lead . Thank you.

  2. James Welge says:

    I agree with your analysis of the Fed Narrative. It is fake and is justification for artificially lowering rates by the Fed.
    I don’t agree that we should eliminate the Fed. The Fed has 3 mandates:

    1) To act as a Lender of Last Resort to banks which are short or Cash. In Fed speak, they are Reserve Short. Think of Jimmy Stuart in “Its A Wonderful Life” after that days Bank Run (set in the early 1930’s) “And Heres Moma Dollar, and Heres Popa Dollar and lets hope they have more children”.

    2. The Fed acts as an arbitor of Monetary Policy thru its abilty to influence Interest Rates thru Open Market Operations. The buying (when the Fed wants reduce rates) or selling (when the Fed wants to increase rate) of Interest baring T-Bills ( 10 year, 20 year, or 30 year bills depending on what part of the Yield Curve they want to tease).

    3. To Maintain Economic Growth as well as Price Stability, The Dual Mandate (circa 1976 Humphrey Hawkins bill).

    Eliminating the Fed would put us in the position of having No Lender of Last Resort to banks which were suffering 1900’s (particularly 1907, 1930, ) style Runs. In those days people out in the street lined up withdrawing money from banks in panc!!! Prior to 1913 a bank short of cash had to borrow it from
    JP Morgan himself!!!!! This posed conflicts of interest which the formation of the Fed was designed ot prevent!!!!!!!!!!!!

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