The US Fed is losing both its power and its relevance to the coming collapse


The News

Australian leaders labouring under the invisible brain of Tony ‘Trappist’ Abbott have at last woken up to the alarming reality of Sydney property prices, a fantasy I earmarked six years ago as the most inflated house-price City on the planet.

The markets are also getting wise to Australia’s one-trick-pony mining economy, and its dependence upon a dramatically slowing China…so that the Aussies are leading the field when it comes to inflation, while the Aussie is losing its value. Deutsche Bank now rates the country one of the most overpriced and risky debt bond destinations in the world.

And yes, you’re right, this is a bit like the captain of the Poseidon warning that the towering inferno is unsafe.

On DB’s home continent, the euro too is sliding in the light of last chance Greek talks having failed. This followed the failure of the time running out talks, preceded in turn by the IMF pre-walkout talks, Greece isn’t being serious talks, the there’s no talking going on talks, and the we must have real reform talks. Given the Troika’s starting point was we press hard and then say no, the failure of the talks that everyone knew were a sham before they started talks is hardly surprising.

Anyway, having masterfully painted both sides into a corner, the Dieselboomers now find themselves wearing the dunce cap. If nothing else, it hides Dijesslbleom’s ridiculous hair.

Who’s worried now, eh? The FTSE fell last week, as did Wall St. Some observers are reporting that Janet Yellen’s planned quarter percent rise is now off the table for June. And she herself has commanded that rates will not get back to “a more normal” 3-5% range for may years” because if they do the US is broke, the Fed chair didn’t add.

But does she, any longer, have such magical powers?
The reality behind the news

I have an eccentric and often derided view about yields, interest rates, maxed credit cards and secured loans: they all merely different faces on the same paste diamond called unaffordable debt. Without debt, neoliberal economics can’t function, because the falling or static real salaries of consumers can’t afford the repeat purchase cycles demanded by the inflated stock markets created by QE in the first place.

Taper off QE, and everyone gets nervous. Raise interest rates and the nerves become acute anxiety, accompanied by South America going bang, the Sydney property market correcting by 30+%, and consumer spending levels dipping. Run Greece round the humiliation track a few times until it falls over, and ClubMed bond prices spike. Add a few BSDs suggesting that near-zero and negative yields are insane, and bond prices everywhere rise.

So the cost of borrowing rises....and that’s when the Friedmanightmare globalist construct starts to wobble.

Now some of this has taken place….and other bits are getting closer. But the Fed has ‘done’, as it were, nothing. There are two points I’m trying to extract here:

1. The Fed has done nothing partly because the tool box is empty – not just because it is adopting a wait and see, kindly old Yellen Owl approach to the mess out there. That’s a little concerning.

2. I doubt very much if the Fed doing something now is going to make any substantive change to the situation, other than worsening it. And that’s very concerning indeed.

I realise that this is a simplification of the situation the world is in, but I don’t think it simplistic; Ms Yellen has options, but most have failed to date – and all have massive downsides to them. We have become addicted to the US Fed doing something. But the globalists have created an economic planet upon which, by definition, any and every infection is contagious… and has a capacity for pandemic.

Resistance to odious debt and bullying technocrats produces defiance contagion. It also exacerbates bond rise contagion with regional spikes. These destroy the consuming and importing value of currencies, which in turn send net exporters to those regions into reverse. Overdependent economies supplying raw materials to the exporters slump into meltdown. Borrowing costs rise further, and hyperinflation beckons as the ‘stimulation’ required becomes akin to mediaeval tulip madness.

And in the entirety of this process, the Fed has done nothing other than wait. What else can it do? As the AIIB and other as yet half-baked alternatives to Dollar hegemony take shape, gather speed and mix every metaphor imaginable, the US needs to face an unpleasant fact: what the Fed says is important, but it’s becoming irrelevant to the bigger picture.

44 thoughts on “The US Fed is losing both its power and its relevance to the coming collapse

  1. Dear John
    My son in Sydney has just sold his house at a record price for the area (Rozelle).
    He is trying to buy an equivalent property somewhere en route to Manley, tou know, like Mosman.
    But he keeps getting gazumped and now his pot of cash from the sale is dwindling in value against the still inflasting market.
    Soon he will be slipping rungs on the housing ladder.
    Should he sit tight and wait for that 30% market correction?
    How long will he have to wait do you think?
    Need to know soonest as he’s living in a 6th floor flat and his 18 month old can now climb over the balcony railing!
    Urgent advice needed.
    No kidding.


  2. Please can you explain the phrase “neoliberal”? I have seen it used a lot recently. It seems to have come out of nowhere. I feel like I am missing something.


  3. The central and inescapable truth is that money is and has to be a medium of exchange of value. When one of the parties starts to question the soundness of the medium you have a problem.

    As JW says the dollar hegemonic model is now dangerously overstretched and has been debased by the money printers and the fractional reserve bankers. It is no surprise that the nations who have been historically dealt a bad hand by the dollar will start to look for alternatives.

    The anti-cash drumbeat is now getting stronger and louder and this seems to me the most profound signal that the dollar system knows it is sick. If the dollar model was so solid it would not be necessary to force people into the banking system to preserve it.


  4. I happened to catch a snippet of BBC’s Question Time where a member of the panel was explaining that we need take more control of fractional reserve banking to which the chairman interrupted with something like: “Hold on. You’ve completely lost me now. What is fractional reserve banking?”
    If a mature and educated man like David Dimbleby (for it was he) doesn’t understand the Ponzi set-up of the whole western financial system, then we are indeed in deep ordure.


  5. I am also mature and over educated and I don’t know what fractional reserve banking is either. I am sensing some problem in that I am broke but well paid. I am trying to get to the bottom of it but am bewildered by a load of financial terminology. Do I need to take another degree in economics?


  6. Rent or move to Ireland! It’s a familiar conundrum my daughter is facing in London right now. Prices are insane but as Keynes said prices can stay irrational longer than we can stay solvent.


  7. Come on: ‘a mature and educated man’ more like ‘another Establishment luvvie’. A man who has never had an original idea in his over privileged life, who has made a lucrative living spouting the BBC pc bollocks.


  8. > The question was obviously or the benefit of the audience
    Dimbleby’s a mindreader … or a very professional defender of the status quo who was sliding the discussion into a TL;DR dead end rather than letting an attack on FRB be heard on air.
    We must be getting to them.


  9. Many Greeks I know always head for the Islands every summer, and this year is no exception, whether spending the last of their hand-to-mouth cash on the Ferry, or this year, taking whatever was still in their bank with them. I have visited downtown Piraeus in midsummer and sure can see why they are desperate to get out of town.

    Many have friends or relatives to stay with and there are still quite a few ‘Greek’ Islands out there that are off the beaten track for all but the most adventurous of tourists. I was talking this morning on Skype to one friend who had been pulling oranges from trees and catching her fish supper from a line at the pier end. They are happy to barter labour, skills and talents as ‘everyone knows everyone’, thus reducing any exchanges of cash and, of course, any resultant taxation.

    While I will be very sorry for those caught in Athens and other Greek cities, through business or family commitments, or infirmity,………when the ATM’s stop working, if ever there was a people in Europe who are exemplary for their generous care for others, even when they have so little themselves, it is the Greek people that I have met.

    I remain convinced that there are still serious risks of contagion with Europe’s Northern Banks and their hidden Derivatives, and hence if/when Greece defaults, I have a hunch that the average French, Dutch and Germans will have far less of a Plan B if there are any stock crashes, bank runs, dysfunctional ATMs, or the Euro drops like a stone in the next few months …..and that any effects of a Greek Default is quite likely to hurt Club North’s cosy little ‘fiscal reliant’ world, more than that of my Greek Island friends.


  10. The problem is that the Fed can only tinker with the tertiary economy i.e. the financial economy of money used to make money. Putting it simply, it has a few buttons and levers to change the amount and access to money. It has no direct effect on the secondary economy, namely the productive economy of products and the services making those products requires (transport, marketing etc). The Fed and similar institutions in other countries can only hope that easier access to money will encourage the secondary economy to borrow and expand. We’ve had five years or more of Zirp without the secondary economy picking up significantly, so we know how well this policy works.

    Why, though, should this be if such measures have always worked in the past? That’s because the tertiary economy has to be in line with the secondary and the secondary, in turn, has to be in line with the primary economy. The primary economy is that of resources be they iron ore deposits, arable land suitable for wheat production, fossil fuel reserves etc, in short everything nature provides. Clearly, you cannot produce more than nature provides no matter how much money you throw at it.

    An example may help to show the point. Let’s say you’ve taken your granddaughter aged six to a theme park. Normally a lovely girl, there’s been a lot of walking and it is a very hot day and so she has started to get tired and ‘tetchy’. You decide it’s time to go home, but the car park is a good 30 minute walk away. To encourage her you say, “How about an ice cream?” Her eyes light up and her mood improves so you head over to the cafeteria. Inside you are surprised that there are so few people queuing for ice cream. The chap behind the counter explains that it is such a hot day that everyone came in for an ice cream and he has run out, but more supplies will arrive in half an hour or so. You ask if there is another cafeteria between here and the car park. “No,” he says, “there’s one about 20 minutes’ walk away, but in the other direction.”
    You reach into your wallet and produce a twenty pound note, “Please”, you say to the man. “I’m sorry sir, I’d gladly take your money, but I really do have no ice cream, not even a secret supply I was holding back just in case!”

    I’ll leave you to work out how the granddaughter reacts to the news! The point is clear, though, lack of liquidity is not the problem the world economy is faced with, which is why the impact of the measures taken by the Fed are pretty much irrelevant.


  11. Hyperinflation might be inevitable as long as the public debt keeps being serviced despite the deleterious effects on private economy. If the debt crashes, then deflation will be inevitable.


  12. Mosman is one of THE most expensive suburbs in Sydney and property is tightly held there. I am not surprised he is being gazumped. Rozelle on the other hand is a former working class suburb that has been and still is, in the process of gentrification.
    Having watched and been involved in Sydney prices and real estate for the last 30 plus years I would suggest that a 30% adjustment in not likely to occur in the near future. He would be an dingbat (Australian slang) to sit around and wait as in the meantime rents are going up and up so that should prices drop he will have spent (and lost) a fortune on rent and what sounds like a property that is inappropriate for family needs.
    Sydney prices are being influenced by the number of overseas investors, many from China and other Asian countries who are buying investment properties.
    Should your son go for a drive through Ultimo, Botany or some other inner Sydney suburb or have a quick look at newspaper real estate sections he will see the huge number of apartments being built and sold ‘ off the plan’ to these investors.
    I would suggest that there is going to be some adjustment to Sydney prices but when and what that will be is nothing like 30%.


  13. Greece should renew all the money held in Greek banks or presented to them within 2 days ,serial numbered any Greek money not present,will be honoured as long as it is used to pay of debts owed, i think those that are undermining the government should pay the price of doing so!by Greece’s own bailin?


  14. People such as Marc Faber deride central bankers as academics who have been economically miseducated in Keynesian or Friedmanite foolishness. As Ron Paul says, there is a need to bin the economic theories which have been peddled this last 50 years.
    The 1%s making the money at the moment are the smart guys front running central banks QE craziness. It is an engine for driving wealth ever upward to TPTB. Mervyn King was heard to mutter: ” Of all banking systems, we have the worst.”
    Yes the fiat money (vastly overprinted & fast approaching toilet paper value) system, & fractional reserve banking (slavery for working plebs & vastly ridiculously inequitable subsidies for Lordly Banksters) system are sailing Titanically toward their iceberg. They are a Ponzi scheme.
    Add in National debt & Govts’ unfunded liabilities depending on a non-existent ever expanding tax take, that’s another ponzi scheme, headed where all ponzi schemes arrive: collapse & failure.

    We are headed for a collapse fiscal, financial & societal. Even the totally understated Ron Paul says this openly.

    My tips, for what they’re worth? Freeze dried long-lasting foodstuffs, a willingness to defend your abode, your own pure water supplies, if possible, & prayer to whatever Gods you hold belief in.


  15. Absolutely. Our government is pretending all is well because they have no other options. Nothing left in the toolbox except war, hence all the sabre-rattling.


  16. Dietrich –
    Same advice I’ve given to No 2 daugter: sit tight and wait for the collapse. I reckon it’ll kick in late Autumn at the latest.


  17. Don’t hold your breath either of you.
    Have a read of what the Governor of the Australian Reserve Bank had to say last week regarding interest rates and the housing cost in Sydney before you pontificate further.
    No born and bred Sydneysider or financially astute person would ever contemplate a jump from Rozelle to Mosman in a rising market let alone current interest rates-unless you are Hugh Jackman or Cate Blanchett and have access to loads of cheap and easy money.
    Didn’t Mark Twain say something to say about the man who waited for land and house prices to fall? Something about buy land as they have stopped making it- somewhat similar in Mosman- it is only so big, properties are tightly held and sellers know they can wait for their price.

    John has been forecasting gloom and doom for Australia for the past couple of years while I have been occasionally visiting this blog. Something about not being able to buy paracetamol when he was here as I recall.
    Forecast such gloom and doom for long enough and loud enough you’re bound to eventually be right.


  18. Australians; Look at reality. Your future is in feeding Asia. Enjoy the serfdom your “leedur” has guaranteed for you. Or not.


  19. Hi Viking Jack
    unlike most of the Slog’s readers, I can read and understand German- living a short skip and a jump from the G7 and Bilderberg Marathons. Austrian hubby laughed me out of the room at my gullability. I think it must be a spoof as no German speaking news is reporting this. It also says it comes under the genre of satire, although I could find nothing satirical in the article.


  20. Hi Ghost
    if you are asking me. I must admit I have no idea and I don’t think it is worth the effort. If Wolfie had decided to retire the whole German speaking news would be full of it- and apparently according to Austrian hubby -it isn’t.


  21. Indeed, I spotted it when busy with something else and gave no further thought to it, apart from a speed read. I did wonder why it wasn’t in the MSM as well, but as mentioned above, totally occupied with something else. Ah well, we can all have an off day every now and then.


  22. Maybe the Americans are worried that we’ll all discover that they’ve used up all that gold bullion they’ve been ‘keeping safe’ for Germany, Ukraine and the rest…


  23. There is no such thing as FRB in the UK, there is no requirement for a bank to hold any reserves whatsoever. Loans, not reserves, create money.


  24. Until 3 years ago, the phrase was neocon, but neolib is the new black so I’ve learned to go along with it.
    A neoliberal is someone who thinks business owes no debt to society at all, and frowns on any and all government spending.
    A globalist is someone who flies business class everywhere marketing multinational crap.
    The former admires the work of Milton Friedman, an academic whose every venture into practical commercial life ended in abject failure. The latter is a fan of Ted Levitt, a twit who invented the term global village – something of no value which doesn’t exist.
    Trust me, you’re not missing anything.


  25. Google it, Jackie. In short banks create money out of thin air, & lend it out at full interest. That’s the no reserves needed part, just say a buyers signature (= promise to repay) on a mortgage application. The bank won’t sign, because it’s still technically fraud to lend out money you don’t have. Only applies to plebs, of course.
    Say someone deposits money in a bank, after selling a car or downsizing houses, then the bank is allowed to lend out 10 X the money deposited. & so ad infinitum. It’s a ponzi scheme. That’s the fractional reserve part.
    Goes back to when the Dutchman William of Orange was manoeuvred onto the English throne. In return for a loan of £1,250,000, the anonymous lenders were granted the rights to a charter for the Bank of England, to consolidate a National debt & to lend out £10 for every £1 they had in their coffers. In addition they could collect the kings’ debts via taxation on the general public. This proud tradition persists, & the National debt is now mathematically unrepayable. :)
    You put cash in the bank & see what interest you get. :)
    There’s 2 types of money in circulation, & it’s money out of thin air vs blood sweat & tears earned money.


  26. Fractional reserve banking is what banks have always done, they got themselves invented for that purpose. It’s like a tradesman taking on several jobs with only one bag of tools- money is their bag of tools. This system worked when people trusted banks, loans written by the bank stayed with the bank and were not used as collateral for more risky speculation. Without that crazy little thing called trust it all breaks down. The only way banks can get your money now is by coercion or force. (this insight is courtesy of Martin Armstrong q.v.)


  27. Thanks for the explanations. Blimey how utterly depressing. I think there is hope on a community level though (re your latest post). My daughter was in hospital recently, admitted as an emergency. As soon as I heard I jumped on a train and travelled 6 hours to be with her. My neighbour dropped everything and gave me a lift to the station and walked my dog while I was away. When I arrived at the hospital the nurses got me some food and a cup of tea just because they were kind not because it was in their job description, and that was a big city hospital.


  28. Thank you. That is truly astonishing. Trying to find out more about what is going on in international finance is like falling into wonderland. It is hard to believe it is true.


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