By: Brandon Smith - Alt-Market.com
Though stock markets in general are meaningless and indicate nothing in terms of the health of the economy they still function as a form of hypnosis, or a kind of Pavlovian mechanism; a tool that central bankers can use to keep a population servile and salivating at the ring of a bell. As I have mentioned in the past, the only two elements of the economy that the average person pays attention to in the slightest are the unemployment rate and the Dow. As long as the first is down and the second is up, they aren't going to take a second look at the health of our financial system.
Historians and economists often wonder after the fact how it was possible for so many "experts" and others to miss the flashing red lights leading into market implosions like that which occurred in 2008. Well, this is exactly how; within any casino there is an inherent bias towards false hope. Meaning, many people will invariably ignore all negative factors and past experience because positivism is more pleasant. Central bankers are keen to take advantage of this condition.
When observing from the outside-in, this attitude rings of desperation. Investors, with no positive fundamental data to turn to in the economy, have now been relegated to scouring press releases and speeches for ANY indication that the central bank might not take the punch bowl away as they have been doing slowly over the past few years. In fact, in most cases negative data has actually triggered spikes in equities because the assumption on the part of investors is that bad data will cause the Fed to second-guess its stimulus reduction policies. In this way, central bankers can, at least for now, fake-out investors with a simple word or phrase released in a strategic manner.
An example of this occurred last week as Fed Chair Janet Yellen threw investors and algo-trading computers a bone with an admission (finally) that inflation (as the Fed measures it) may not be as strong as the Fed had hoped. Investors cheered. Their assumption now is that the Fed will not continue with its steady interest rate increases. But, if one examines the central bank's past behavior this is a foolish assumption.
The Fed will indeed continue its interest rate hikes unabated, and here's why...
The tone set by the central bank on interest rates has been overwhelmingly "hawkish" over the past six months. Minutes from the Fed's June meeting mention a concern over stocks being "too high," and the potential for "market risks." Fed officials also cite concerns that markets have been ignoring rate hikes with blind exuberance. The Fed has continued rate hikes through 2017 despite a constant barrage of negative data, causing confusion in the financial world.
I covered elements of this deluge of bad data in my article 'Peak Economic Delusion Signals Coming Crisis'.
First, it is important to understand that everything the Fed does and says publicly is highly calculated. When there is confusion surrounding Fed rhetoric, it is often strategic, not random. Yellen's admission to the U.S. House Financial Services Committee that low inflation is a concern conflicts with numerous Fed statements made previously.
For example, last month Yellen surprised analysts with her claim that she "expects no new crisis in our lifetimes." This is an extremely confident and hawkish sentiment on top of numerous other arguments in favor of interest rate hikes regardless of low inflation. Only weeks later, inflation is suddenly a concern?
Investors immediately interpreted Yellen's mention of low inflation to mean that the Fed was backing away from its hard stance on rate hikes, as well as its pursuit of reductions in its balance sheet. What they completely ignored was the fact that Yellen also reiterated to the same Financial Services Committee the Fed's intention to CONTINUE rate increases at the current pace.
The Fed has used this method of mixed messages before. During the lead up to the taper of quantitative easing, central bankers sent mixed messages to the investment world leading everyone to believe that the taper was a no-go. Investors, of course, celebrated, while many alternative analysts were patting themselves on the back for their prediction that the Fed would "never" taper QE.
In the midst of rising potential for interest rate increases, the Fed pulled a fast one on analysts once again. Citing growth concerns, Yellen bamboozled mainstream economists and alternative economists alike, sowing the seeds of assumption that rate hikes were going to fall by the wayside.
In every case, the Fed insinuated it had "doubts", while at the same time stating that the removal of stimulus will march onward. This time will be no different. Interest rates are going up up up, and the only question is, how long will it take before market investors accept this as reality and equities crash in response?
I believe that Yellen's latest pronouncement of "no new crisis within our lifetimes" is a signal that this reversal in the stock bubble will take place very soon. I am reminded immediately of these quotes from prominent names in the economic world just prior to the crash of 1929:
John Maynard Keynes in 1927: "We will not have any more crashes in our time."
H.H. Simmons, president of the New York Stock Exchange, Jan. 12, 1928: "I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future."
Irving Fisher, leading U.S. economist, The New York Times, Sept. 5, 1929: "There may be a recession in stock prices, but not anything in the nature of a crash." And on Sept. 17, 1929: "Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."
McNeel, market analyst, as quoted in the New York Herald Tribune, Oct. 30, 1929: "This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years."
Harvard Economic Society, Nov. 10, 1929: "... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."
Yellen seems to be echoing the bewildering rhetoric of past economic catastrophe; offering prophecies which she knows are false while purposely increasing instability through interest rate hikes. As I have noted many times, this is the classic modus operandi of the Fed. The Fed raises rates into economic decline and ignores all evidence that they are bursting a bubble they engineered — this is what they do.
During recessionary conditions in 1927, the Fed increased the money supply exponentially through open market purchases and a reduced discount rate, which many economists argue was a primary catalyst for the artificial liquidity that created the stock market bubble of 1929. Once the crash occurred and the depression set in, the Fed RAISED RATES and made matters worse (as openly admitted by Ben Bernanke decades later in 2002). The Fed thus prolonged the depression for years beyond the normal deflationary cycle.
Using history as our guide, central bankers like to conjure an environment of fiscal dangers, then they warn of those danger too little too late, and then claim ignorance of their own activities after the crash.
This is nothing new in our era. Former Fed chairman Alan Greenspan publicly admitted in an interview that the central bank knew an irrational bubble had formed, but claims they assumed the negative factors would "wash out."
Once they are ready to allow their planned implosion to occur, the central bankers are more than happy to throw investors to the wolves. That is to say, the investment world's optimism is only useful to the Fed for a time. If rhetoric and behaviors previous to the crash of 1929 are any measure, today we are only meager months away from a similar event. For further explanation, I outline in detail the reasons why the globalists would instigate a fiscal crisis in my article 'The Federal Reserve Is A Saboteur — And The "Experts" Are Oblivious.'
I suspect that the central banks and the globalists that control them are hoping to bide their time in terms a complete equities crash in preparation for a geopolitical event — a distraction massive enough to draw attention away from the bankers and their culpability for any economic disaster. They certainly will not allow stocks to crash in a vacuum.
In conclusion, I would like to leave readers with a quote from Great Depression era Federal Reserve chairman Roy Young. Perhaps investors should consider that they are being duped by central bank ploys, and that they are useful idiots in a game designed to keep the public under control with fraudulent markets until the Fed is ready to pull the plug. When the crash takes place, the Fed will find a way to remove itself from any blame. In the meantime, make no mistake, the interest rate hikes will continue into next year and the Fed's balance sheet will be reduced.
Addressing the Indiana Bankers Association, before the Stock Market Crash of 1929, Fed Chairman Roy Young had this to say:
"Many people in America seem to be more concerned about the present situation than the Federal Reserve System is. If unsound credit practices have developed, these practices will in time correct themselves, and if some of the overindulgent get 'burnt' during the period of correction, they will have to shoulder the blame themselves and not attempt to shift it to someone else."