Higher than Anticipated

The Fed's wet blanket, stocks turn south, nostalgia for the Old Republic and more...

(Source: Getty Images)

Bill Bonner, reckoning today from Salta, Argentina...

Well…it’s one, two, three
What are we fightin’ for?
Don’t ask me ‘cause I don’t give a damn
The next stop is Vietnam
And it’s five, six, seven, eight
Open up those pearly gates
Ain’t got time to wonder why
‘Cause we’re all gonna die.

~ Country Joe and the Fish

The news yesterday had everything “dropping fast:” Reuters:

Fed's Powell opens the door to higher and possibly faster rate hikes

WASHINGTON (Reuters) - The Federal Reserve will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the "totality" of incoming information suggests tougher measures are needed to control inflation, Fed Chair Jerome Powell told U.S. lawmakers on Tuesday.

"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," the U.S. central bank chief said in opening remarks at a hearing before the Senate Banking Committee.

Greater Challenges

As we’ve been saying…the Fed has to raise rates and lower stock prices. It will keep at it until something goes very wrong. Then, when the going gets tough, the Fed is still likely to abandon its war on inflation. Soon, it will retreat, and conduct only rear-guard harassment operations. (Tomorrow, a businessman explains how the Argentine economy ‘works’ with 100% inflation.)

Money is our beat here. But America’s financial system…and your money…face much greater challenges than just a bear market on Wall Street.

A friend sends this from the Argentine press:

“Not sure what to make of this: 

US Congresswoman warns Buenos Aires not to build Chinese fighter jets

What to make of it? What in the world is the politician thinking?

We are exploring the events and trends that are likely to cause the ‘cluster’ catastrophe headed our way. Readers may sense some indignation and disgust in our tone; but ours is a prejudiced view. We liked the Old Republic. 

Yes, of course, it slipped into sin more than once. Yes, it over-spent occasionally. Yes, it made terrible mistakes and by mid-20^th century had already bitten into the imperial fruit.

Way Back When

But before 1971, no Congresswoman, no matter how dim, would have thought it was her job to tell the gauchos what to do.

Before 1971, America’s money was still good. So was its reputation.  

We remember when gasoline cost 25 cents a gallon, when we could get on a plane without a pat-down and when we could open a bank account and get a free toaster oven, rather than a 3^rd-degree interrogation. There was no war on drugs, no ‘homeland’ and no ‘Homeland Security’…and no snoops reading our mail… or telling us what kind of kitchen stove we should use. And there were a substantial number of citizens, in and out of government, who still wanted to balance the budget at home and leave people alone overseas.

Yes, the US was, then as now, engaged in a pointless war…but at least there were people in the streets challenging it.  

Today, the real ‘conservatives’ are all gone…the Democrats are all pro-war, Republicans too…and the citizens go along with everything –  Covid Hysteria, war fever, debt, diversity and dysfunction. The Fed says inflation should be at 2%? Sure, why not?

Permission-Based Living

Citizens of an honest republic can decide for themselves when to go out of doors.  But the subjects of an empire ask permission. They get bread; they must join in the circuses too.

But people come to believe what they must believe when they must believe it. If they were told to stand on one leg and recite the pledge of allegiance, they would do so.

Even fruitcakes eventually go stale. Empires reach their ‘sell-by’ dates too. Now in its corrupt and degenerate stage, at home and abroad the empire implements its Bad Guy Theory. “You’re either with us, or against us,” say Bush, Obama, Trump and Biden.

Here’s an example. Ms. Janet Yellen went to visit the Ukraine. In her statement she made it clear that good and evil were butting heads:

 “Russia’s barbaric attacks continue — but Kyiv stands strong and free.”

Nor did she have any doubt about what side we are on:

“America will stand with Ukraine for as long as it takes”

So easy. So simple. Good guys vs. bad guys. 

But what a bunch of morons. 

More to come…

Regards,

Bill Bonner    

Joel’s Note: “We maintain that the terminal rate of the Fed’s rate-hike campaign is closer to 6% than 5%.”

That was Bonner Private Research’s macro analyst, Dan Denning, writing to members back in November. Dan was looking at the possibility/probability of another recession, based on the yield curve having inverted. As you can see, past recessions (as indicated by the gray areas) have followed inversions with a fair degree of reliability.

(Source: Federal Reserve Bank of St. Louis, fred.stlouisfed.org)

Will past be prologue? Continued Dan, citing the work of his compeer over on BPR’s paid research side…

“What Investment Director Tom Dyson has called The Fed’s Wrecking Ball (a combination of higher rates and a run-off of its nearly $9 trillion balance sheet) has only just begun to hit the real economy. It will result in tighter credit, higher unemployment, and lower corporate earnings. Stocks have not yet ‘priced in’ a 2023 recession.”

The Fed will continue hiking, in other words, “until something breaks.”

But what if stuff is already breaking? According to the Federal Reserve Bank of New York, total household debt reached $16.90 trillion in Q4 2022, largely driven by swelling credit card debt, which is rapidly approaching the $1 TRILLION mark.

From the NY Fed’s website:

Credit card balances jump to $986 billion, marking a new series high

NEW YORK—The Federal Reserve Bank of New York's Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit. The Report shows an increase in total household debt in the fourth quarter of 2022, increasing by $394 billion (2.4%) to $16.90 trillion. Balances now stand $2.75 trillion higher than at the end of 2019, before the pandemic recession.

Mortgage balances rose by $254 billion in the fourth quarter of 2022 and stood at $11.92 trillion at the end of December, marking a nearly $1 trillion increase in mortgage balances in 2022.

Credit card balances increased $61 billion in the fourth quarter to $986 billion, surpassing the pre-pandemic high of $927 billion. Auto loan balances increased by $28 billion in the fourth quarter, consistent with the upward trajectory seen since 2011. Student loan balances now stand at $1.60 trillion, up by $21 billion from the previous quarter. In total, non-housing balances grew by $126 billion.

With Mr. Powell’s “higher than anticipated” rates now very much in the near future, it’s getting harder and harder for working Americans to get out from under the growing debt pile.

Digging won’t help. But a prudent plan to safeguard your savings and earn a little income along the way might…

Follow Dan and Tom’s investment strategy, designed specifically to preserve the purchasing power of your wealth through the Fed’s “wrecking ball” cycle, right here: