Yesterday, after hiking interest rates by 0.75%, the most in a single meeting since 1994, Federal Reserve Chairman Jerome Powell said, “We’re not trying to induce a recession.”
This will go down in history as one of the biggest lies ever, alongside Powell’s remarks in 2021 that inflation will be “transitory.”
He probably said this so he has deniability. So he can say, “Look, we weren’t trying to cause a recession! We were just trying to get inflation under control! But this recession–this deep, devastating recession–was not our intention! It’s an unintended side effect.”
But he neglects to mention that the only way to really stop inflation is to cause a recession.
I’m going to put this in very simple terms: the Fed is trying to cause a recession. They absolutely are. When they say they intend to get inflation under control, they’re going to do so by causing a recession.
I mean, think about it in the most basic sense: what causes rising prices? Either increased demand, or decreased supply.
So how do you thwart inflation? You either destroy demand, or boost supply to create a glut.
We’ve got supply chain issues all over the place, but the Fed can’t really do anything about that.
All they can do is affect the demand side of the economy.
So that leaves them with one option: destroy demand.
And what does that look like in practice? It means destroying the American consumer.
Prices will stop rising if there’s mass unemployment and people have no money. That’s a guarantee.
In the simplest terms, the way to stop inflation is by causing a recession.
The Fed obviously cannot admit this, and they never will.
But it’s baked into the cake. It’s a foregone conclusion.
GDP for Q1 2022 was already negative, and Atlanta Fed’s GDP tracker for Q2 is projecting 0% growth, and that basically equals recession.
A recession is two or more straight quarters of negative GDP growth. If GDP comes in at even -0.1% for Q2, it’s a recession, officially.
But when I say this recession is baked into the cake and a foregone conclusion, I’m not just talking about GDP right now.
What I’m saying is that the Fed has been preparing for this for a while now. Way back in February 2021, the Fed conducted a “stress test” to see if the major banks could withstand a 55% decline in equity prices.
That means a 55% market crash–in the S&P 500 only. The Nasdaq will be down way more than 55% in this scenario. The Nasdaq is already down nearly 34% from it’s late 2021 highs. That’s worse than the Covid Crash.
The S&P 500, comparatively, is only down about 23.5% as of right now, Thursday morning on June 16.
So in a scenario where the S&P 500 is down 55%, that will mean the Nasdaq is down probably 70% or more.
The Fed announced this stress test in February 2021. In June 2021, they announced their results: the banks can handle it–they think. CNBC:
The Federal Reserve, in releasing the results of its annual stress test, said that all 23 institutions in the 2021 exam remained “well above” minimum required capital levels during a hypothetical economic downturn.
That scenario included a “severe global recession” that hits commercial real estate and corporate debt holders and peaks at 10.8% unemployment and a 55% drop in the stock market, the central bank said.
While the industry would post $474 billion in losses, loss-cushioning capital would still be more than double the minimum required levels, the Fed said.
The Fed has already gamed this out. Why would they test for a severe global recession featuring unemployment of nearly 11% and a 55% crash in the S&P 500?
Because they knew that if inflation got out of control, they’d have to prepare for this type of scenario–one that they themselves would cause.
And that’s what we’re heading into right now.
In my opinion, the economy has basically been in recession since Covid hit, however, it has been masked due to the ridiculous amount of money printing, stimulus, and rock-bottom interest rates.
But now that’s all over. The money printer is off, the stimulus is long gone, and interest rates are skyrocketing.
The recession is here.
A lot of people are still delusional because they have grown used to 14 years of the Fed bailing the economy and the market out every time it runs into trouble.
But due to inflation, that is no longer possible.
I keep saying it: the rules of the game have changed now, and people had best adjust to the new reality.
There will be no bailout until inflation comes down.
The rules of the game have changed.
We’re in a different monetary environment now. The Fed is not coming to the rescue.
They are trying to maintain order while they systematically dismantle the economy. They’re saying, “Keep calm, everything is fine, nothing to worry about,” while they furiously hike rates and send the economy and the stock market into a tailspin.
We are, right now, in the midst of the fifth-worst bear market in the history of the Nasdaq index, which goes all the way back to the early 1970s. The Dot Com crash (-78%) was worse, 2008 (-56%) was worse, 1987 (-36%) and 1974 (-52%) was worse.
But that’s it. This is worse than the Covid Crash, worse than 1990, worse than 1998–and soon, it will overtake the 1987 crash.
The reason I am certain it will overtake 1987 is because nobody is really even panicking right now. It’s been a rather orderly 34% crash, all things considered. We have not even come close to seeing the worst of it. We haven’t triggered the circuit breakers yet. CNBC has only run ONE of their “MARKETS IN TURMOIL” specials during this whole drawdown.
Sure, we’ve had days of -4%, -3% and even -5% over the past 6-7 months, but the circuit breakers don’t get tripped until we hit -7%–and that’s just in the S&P 500. We haven’t even had a -7% day in the Nasdaq yet.
In other words, we haven’t seen true panic and chaos yet.
Remember during the Covid Crash, there was a day when the S&P fell by 12% (March 16). There was a -9.5% day, too (March 12, 2020). We haven’t even had one day of -7% or worse during this selloff.
That’s true panic and chaos.
Dating back to 11/1/2021, these are the worst Nasdaq days we’ve seen over the past 7.5 months:
It has been bad, but it has been a rather orderly, ho-hum 34% market crash, all things considered.
And I think that’s because a lot of people out there believe the Fed when they say they’re not trying to cause a recession. And they believe the big banks when they say they’re not currently forecasting a recession.
But they’re all lying. I’m telling you. The Big Banks don’t want chaos. They don’t want all their investors to run for the exits. They have every incentive to lie to you to keep you. They don’t want you to panic.
They want you complacent the whole time.
But make no mistake: this is a controlled demolition–of the stock market, of the economy, of the housing market. It’s all happening whether you like it or not.
I’ve been saying it for months: if you don’t think they will hike rates into a recession, just look at Paul Volcker in the early 1980s. When there’s inflation, they do not care about the economy. They will reduce the economy to a smoldering crater if that’s what it takes to get inflation under control.
Inflation is their #1 priority. They only care about unemployment rates when inflation is under control. But when inflation is running wild, not only do they not care about the broader economy, but it is their #1 goal to destroy the economy in order to tame inflation.
Inflation destroys currencies, and and the US dollar is the backbone of our global empire.
Look at your dollars: they say “FEDERAL RESERVE NOTE” on the back.
The Fed cares more about its dollar than it does your stock portfolio, or your ridiculously inflated home valuation, or even your job. They don’t care if you lose your job, or if $150k gets lopped off the Fugazi valuation of your home, or if your 401k is down 60%.
All that matters to them is preserving and protecting their dollar.
Inflation is destroying their dollar currently. Even if that inflation is largely the Fed and the US government’s fault, they don’t care. They will do whatever they can to get that inflation tamed.
This is your final warning.