Wednesday, September 18, 2024

Bill Bonner, "Thank You For Your Attention To This Matter"

"Thank You For Your Attention To This Matter"
The Fed almost always favors more credit at lower interest rates,
 resulting in more debt. The need to service the debt 
subtracts from the amount of money available for other things.
by Bill Bonner

Dublin, Ireland - "The big news - the rate cut expected from the Fed - will come to light in a few hours. But what a circus. Here’s the Financial Times: "Wall Street has raised its wager on the Federal Reserve making an aggressive half-point cut to US interest rates when it meets this week, with traders now putting the odds of a jumbo cut at about 64 per cent. Since late last week, investors in the futures market have steadily ramped up expectations of a bigger cut from central bank officials at this week’s meeting concluding on Wednesday — rather than the more traditional 0.25 percentage point change. The increased expectations come in the wake of US economic data that has shown the labour market slowing and inflation cooling. The Financial Times and The Wall Street Journal reported last week that the Fed was facing a close call on whether to cut rates by a quarter point or half point."

All up and down the internet, people are making predictions... making bets... and making fools of themselves over the Fed’s next move. Anticipating more ‘money printing,’ both gold and bitcoin are on the rise, MarketWatch: "The largest cryptocurrency was up more than 5% on Tuesday to around $60,945, the highest level since Aug. 27, according to Dow Jones Market Data. Bitcoin is up 45% year-to-date, while it is still 17.6% lower than its record high of $73,798 reached in March. "

And here’s Elizabeth Warren asking the Fed not for just a 25 basis point cut... nor even a 50 point cut... but a whopping three-quarter of a percent cut. Her letter to Powell warns: "If the Fed is too cautious in cutting rates, it would needlessly risk our economy heading towards a recession. A number of economists have warned of this risk since July. Former president of the Federal Reserve Bank of New York, Bill Dudley, wrote, “dawdling now unnecessarily increases the risk. The Committee must consider implementing rate cuts more aggressively upfront to mitigate potential risks to the labor market. Thank you for your attention to this matter."

Poor thing... she sounds like an economist! But a real economist would know better. It is absurd for the Fed’s Federal Open Market Committee to think it knows exactly what interest rate millions of savers, borrowers, spenders and manufacturers need. It is even more absurd for Ms. Warren to butt in. Should the key rate be higher... or lower? How would she know? And if she knows how much credit should cost. How about eggs? How about houses?

Of course, she doesn’t know. And neither does anyone else. Prices are information. And the information is only useful if it comes to you untainted... unbent... and un-suborned. You can’t force it. You just have to listen... and discover it, from the voluntary bid and ask in the debt markets. The market tells us how much credit is available... and how much demand there is for it. No group of arrogant economists... nor grandstanding politicians…can possibly know better.

As we have seen, the Fed almost always favors more credit at lower interest rates, resulting in more debt. The need to service the debt subtracts from the amount of money available for other things. Then, the feds then are forced to cut back... or ‘print’ more money.

The real problem in America, as we suggested yesterday, is that there is too much [fake] money... lent at [fake] rates that are almost always too low. People borrow money to buy things they don’t really need and can’t really afford. Companies borrow money to buy back their own shares... figuring, correctly, that they will get more in dividends from their own earnings than they will pay in interest. The US government borrows too - nearly $2 trillion per year. Yes, they’re adding to the nation’s debt at an alarming rate; but maybe that will be someone else’s problem?

The deluge of money pollutes the wells... swamps the fields... and soaks carpets throughout the country. Bright, ambitious young people go to Wall Street, rather than into useful careers... because that’s where the money is. Mega-rich donors aim for control of the nation’s politics - because it is politics that controls the flow of money. Manufacturing gets shipped overseas, simply because when you are loaded up with EZ, printing press money - it is easier to buy things from the foreigners than make them ourselves. And now... today... the Fed will add more ‘liquidity’ to a saturated, rotting system."

Research Note, by Dan Denning: "With financial market near all-time highs, valuations off the charts, and inflation above target, the Federal Reserve looks set to cut interest rates later today. One effect: lower borrowing costs for a US government already over $35 trillion in debt. The chart below from The Daily Shot shows the correlation between US public debt and the inflation-adjusted gold price. Conclusion: the higher the debt goes, the higher the gold price goes."

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