The “No Drama” Fed Delivers

Now What? [The Daily Reckoning] February 01, 2023 [WEBSITE]( | [UNSUBSCRIBE]( The “No Drama” Fed Delivers - The “no drama” Fed delivers… - Why a recession is practically guaranteed… - Then Jim Rickards shows you why we don’t need the Fed at all… [Urgent Winter Warning From Jim Rickards]( [Click here for more...]( I just recorded an urgent warning in the freezing cold of Baltimore to reveal a devastating scam that the radical Democrats are pulling on the citizens of Maryland here and countless other states. Because according to my research, Joe Biden has already set in motion a devastating series of events thanks to his party’s radical “Green New Scam” policies… Soaring resource costs, crashing markets, chaos on Wall Street… Nothing can be ruled out leading up to February 1st. But if you know what to do, you could “opt-out” of this winter nightmare… And happily heat your home and fuel your life while potentially 15X’ing your money in the next 90 days IF you know what moves to make… [Click Here For The Details]( Annapolis, Maryland February 1, 2023 [Brian Maher] BRIAN MAHER Dear Reader, The stock market was convinced — overwhelmingly — that Mr. Powell and mates would announce a 0.25% rate increase at 2 p.m. today. And at 2 p.m.today, a 0.25% rate increase they announced. That is, the Federal Reserve fell in with every expectation. Its benchmark rate now squats between 4.50% and 4.75% — the highest since October 2007. And as Jim Rickards has noted in these very pages, Powell’s Federal Reserve is the “no drama” Federal Reserve. It has two steady and predictable hands upon the steering wheel. It will activate the turning indicator blocks in advance of any veers. And so Wall Street will enjoy generous warning. What did the Federal Reserve indicate today? A generally even course — no “pivot.” Today it intoned that inflation “has eased somewhat but remains elevated.” It warned of “ongoing” rate elevations. Thus Mr. Powell mumbled: We’ve raised rates four and a half percentage points, and we’re talking about a couple of more rate hikes to get to that level we think is appropriately restrictive. Why do we think that’s probably necessary? We think because inflation is still running very hot. There is a hint of justice in the chairman’s statement. Consumer price inflation runs very hot — at 5.7%, officially — though not at last summer’s fever levels. That is, consumer prices have fallen into a certain disinflation these past several months, again, as gauged officially. Yet what about the costs of services… and commodities? Are they undergoing a parallel disinflation? They are not. Mr. Jose Torres of Interactive Brokers: While goods are experiencing sharp disinflation, commodities and services are actually accelerating, despite headlines screaming cooler inflation. In fact, the Cleveland Fed’s nowcast on January headline CPI has it running at 7.6% annualized… Inflation is not over, and neither is the Fed’s battle against it. Services bulk large in the United States economy. And elevated commodity prices worm their eventual way into the consumer price index. Perhaps, then, the Federal Reserve will remain on the warpath longer than Wall Street pleases. Might the Federal Reserve even court recession to scotch inflation in all its forms? Mr. William Zox of Brandywine Global believes it may: While they would never say so, they might prefer the restorative aspects of a recession and a proper bear market. That is, the Federal Reserve might wish to leash in Wall Street. The rate-sensitive Nasdaq just enjoyed its most jubilant January since 2001. And despite the Federal Reserve’s rate hikes and balance sheet maneuverings, financial conditions have proven remarkably loose of late. As the gentlemen and ladies of Global Macro Monitor note: We don’t know for certain, but we suspect there is still way too much liquidity/money, however loosely defined, in the system. Markets don’t rip as they did in January with tight money. We are inclined to agree. And we suspect the Federal Reserve would like to tug on the leash. Alas, we envision recession. As we have noted on multiple occasions, monetary policy attaches to a nine–12 month lag. We therefore expect last year’s rate hike bombardments will set off economic detonations this year — and likely soon. Only after the destruction is too obvious for even the Federal Reserve to ignore… Wall Street will have its precious pivot. Yet a question lingers very heavily in the air: Is the Federal Reserve even necessary? And what is the real purpose for its existence? Jim Rickards tackles the questions below. Please read on. Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) Editor’s note: Bloomberg reports that“People will die because of” [this.]( Millions of middle-class Americans are already at risk… and sadly… they don’t even know it. [Are you prepared for $1,000 electric bills?]( Sounds crazy? Well, we strongly urge you to [click here right now]( and pay very close attention to this video and learn how to opt-out of the madness that may very well be coming. [Secret Gold Back currency RUINING Biden’s plans for a digital dollar?]( [Click here for more...]( What I’m holding in my hand is a completely new form of money… As we speak, it's being used as an alternative currency across the U.S. minting in places like Utah, New Hampshire and Nevada… And since it’s made out of a thinly printed sheet of REAL gold... It may be the single best way to protect your wealth from Biden’s plan for a government controlled digital dollar. That’s why, I want to offer to send one to you today. But since I have a limited number I need you to respond to this message by Wednesday at midnight. I’ve recorded a short 2 minute message that explains everything… [Click Here To Watch Now]( The Daily Reckoning Presents: “The real purpose and the secret of the Fed is to bail out banks using government money”… ****************************** We Don’t Need A Central Bank By Jim Rickards [Jim Rickards] JIM RICKARDS Does the United States need a central bank? More specifically, does the Federal Reserve System (the “Fed”) perform a useful function in terms of economic growth, financial stability or creating jobs? With endless commentary on Fed policy providing “stimulus” or “reducing unemployment” or “fighting inflation,” there’s surprisingly little comment on whether the Fed can actually do any of those things. And if they can, whether they do a good job of it. Almost no one asks the question as to whether we even need a Federal Reserve System in the first place, and if so, why. Fed “Stimulus” Is Not a Stimulus The empirical evidence of the Fed’s efficacy is clear. The Fed cannot stimulate the economy. One need only consider the period from 2009–2019. During those 10 years, the U.S. economy was recovering from the Great Recession of 2007–2009. This included an intense financial panic over the course of 2008 with the sequential failures of Bear Stearns, Fannie Mae, Freddie Mac, Lehman Bros. and AIG. We also experienced the near-failures of Goldman Sachs and Morgan Stanley, which were the next dominos to fall until the Fed turned them into bank holding companies and rescued them alongside Citi, Wells Fargo and JP Morgan. Average annual GDP growth in all recoveries since World War II was slightly over 4.2%. Average annual GDP growth in all recoveries since 1980 was 3.75%. The average annual GDP growth in the 2009–2019 recovery was 2.1%. This was the weakest recovery in U.S. history. It came at a time when the Fed expanded its balance sheet from $800 billion to $4.5 trillion through the use of quantitative easing (“QE”) in programs known as QE1, QE2, QE3, QE4, and candidly we’ve lost count of the QEs since then. The Powerless Fed You rarely hear the term “QE” anymore. That’s because it doesn’t work. Numerous research papers by Fed and non-Fed economists have reached that conclusion. In short, Fed money printing does not contribute to growth and is not stimulative. The same is true for interest rate cuts. Remember the zero interest rate policy (ZIRP)? The Fed held interest rates at zero from December 2008 to December 2015, and then barely raised them at all until 2017. That period of ZIRP overlaps with the anemic growth in the recovery from 2009–2019. Again, this is strong evidence that ZIRP has no stimulative power. Recessions and expansions happen; they’re part of the business cycle. But the Fed has little to do with them. Business cycles are driven by macro events such as postwar mobilizations, supply shocks, fiscal policy, pandemics, regulatory blunders, consumer confidence, technology breakthroughs and demographics. The Fed Is Good at Damaging the Economy The Fed has little to do with any of those drivers. In fact, the entire history of the Fed is one policy blunder after another in terms of misreading business cycle indicators. The Fed clearly caused the Great Depression by tightening monetary policy in 1927–1929 prior to the stock market crash of October 1929. The Fed prolonged that recession by keeping policy too tight. The U.S. emerged from the first recession (1929–1932) of the Great Depression when FDR devalued the dollar against gold in 1933. The stock market rallied strongly from 1933–1936, but the Fed blundered again by tightening policy in 1937, which led to a sharp recession in 1937–1938. It was this sequence of two recessions with the second occurring before we had recovered from the first that turned the entire period into the Great Depression (1929–1940). One conclusion is that the Fed has limited ability to help the economy but is quite good at damaging it. In fact, for 77 years from 1836 to 1913, the U.S. did not have a central bank. There is no doubt that this was one of the greatest and longest periods of economic prosperity in the history of the world. There were 16 recessions over this period, and six outright financial panics (1857, 1873, 1893, 1896, 1907 and 1910). Still, the overall trend in growth was positive and this growth was generally non-inflationary and fueled by technological innovation. This included railroads, the telegraph, the telephone, farm equipment, the automobile, skyscrapers, electricity and transoceanic cables. [Urgent Notice From Paradigm CIO Zach Scheidt!]( [Click here for more...]( Hi, Zach Scheidt here… I’m the Chief Income Officer at Paradigm Press. With inflation raging (and showing no signs of coming to an end any time soon), almost everyone in America is feeling the pain in a big way. Which is why, several months ago, I set out on a big mission… my goal was to create a complete, step-by-step plan to surviving and beating inflation… one that anyone could take advantage of. Today, after hundreds of hours of research, I’m revealing all of my findings. See how to survive America’s deadly inflation crisis. [Click Here To Learn More]( We Don’t Need the Fed Recessions are driven by the business cycle and fiscal policy. The Fed can make recessions worse, but it cannot cure them. The economy does that on its own. On the face of it, we do not need a Federal Reserve to set interest rates. The market seems to do a good job of setting rates on its own. We do not need a Federal Reserve to prevent recessions since they happen frequently for reasons that have nothing to do with the Fed. We do not need a Federal Reserve to ensure growth since the U.S. had spectacular growth from 1836–1913 without a central bank. If the Federal Reserve has no important purpose in setting interest rates, preventing recessions or ensuring growth, why do we have a Federal Reserve at all? The answer goes back to a strange sequence of events from 1906–1913. These events reveal the real purpose and the real secret of the Federal Reserve. Crisis: The Mother of Opportunity On April 18, 1906, there was a massive earthquake and fire that devastated the city of San Francisco. Over 3,000 people died and over 80% of the city was destroyed. Insurance companies immediately began to liquidate assets to raise cash to cover the expected claims. This selling put stress on New York banks and the New York Stock Exchange and other financial markets in the east. The combination of liquidity stress from the San Francisco earthquake and loss of confidence from the collapse of the Knickerbocker Trust Co. in New York led to bank runs. At the height of the panic on Oct. 19, 1907, Pierpont Morgan, the most famous banker in America and head of J. P. Morgan & Co., commenced a series of meetings at his New York City brownstone at the corner of 36th Street and Madison with top bankers and government officials. Through his leadership, Pierpont Morgan almost single-handedly saved the U.S. banking system. The Mysterious Trip to Jekyll Island Immediately after the Panic of 1907, bankers and politicians began asking the obvious questions. What would happen in the next panic? Pierpont Morgan wouldn’t live forever. (Morgan died in Rome in 1913). Who would save the system the next time the banks were on the edge of collapse? The top bankers decided that a new central bank was needed. Ideally, this bank would be owned by themselves but would have the backing of the U.S. government in the form of being able to issue currency. Most importantly, this central bank would be able to act as a lender of last resort to private U.S. banks. U.S. Sen. Nelson Aldrich (R-RI) became the political champion of a new central bank. In 1910, Aldrich organized a secret trip to an exclusive private club on Jekyll Island, Georgia, involving the leading bankers of the day. Over the course of a week, this group wrote what later became the Federal Reserve Act. It was known at the time as the Aldrich Plan. The group knew that Americans had hated central banks. That’s why they did not call their creation a central bank or the Bank of the United States. Calling it the Federal Reserve was both deceptive and anodyne. It took several years to enact this into law, but the act was finally signed by President Woodrow Wilson in the closing days of 1913. The Fed has been with us ever since. The Real Purpose of the Fed To this day the 12 regional Federal Reserve Banks are owned privately by the banks in each region. Direction is provided by the Board of Governors of the Federal Reserve System appointed by the U.S. president and based in Washington, D.C. The overall system is a perfect hybrid of public and private interests. The real purpose of the Federal Reserve has nothing to do with helping the economy, setting interest rates, lowering unemployment or any of the other policy purposes you hear and read about. The real purpose and the secret of the Fed is to bail out banks using government money. The bankers have their hands on the printing press. So the short answer is that the U.S. does not need a central bank. The U.S. did just fine without one. The Fed cannot stimulate the economy. The Fed does not cause the business cycle (but it can make things worse and often does). The Fed cannot create jobs. The Fed only exists to give bankers control of money and to bail themselves out about once every 10 years. Everything else you hear about stimulus, job creation, interest rates, financial stability and more is just noise. The coming severe recession may finally force some to ask hard questions and to clip the Fed’s wings. Just don’t count on it. Regards, Jim Rickards for The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) P.S. Bloomberg reports that“People will die because of” [this.]( Millions of middle-class Americans are already at risk… and they don’t even know it. I think we all share the notion that Biden’s policies have been disastrous for the country. If you pay attention to my Twitter account at all, you know I’m extremely outspoken against the president. But as bad as Biden’s been so far… it’s about to get way, way worse. Biden’s policies have set us up for an unprecedented February. [Are you prepared for $1,000 electric bills?]( Because thanks to the Democrats biggest blunder yet, I believe we are headed for trouble in the coming days. You need to [click here right now and pay very close attention to this video and learn how to opt-out of the dems newest scam before it’s too late.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) [Jim Rickards] [James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. 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