The FED Will Pivot Once China and Russia are Sufficiently Damaged

“What’s good for the United States is good for the New York Stock Exchange. But what’s good for the New York Stock Exchange may not be good for the United States.”

- William McChesney Martin

www.azquotes.com...

en.m.wikipedia.org...

Mr. Martin, Fed Head from 1951 to 1970, more-less told us with the above quote that the agenda of The Fed is likely a mission that goes beyond interest rates an economics - those are just policy tools to shape the future and protect America’s status as the worlds largest economy.

It is in that light that I say the following:

The Fed will face data in the next 120 days that will make additional rate hikes hard to pull off. It will also be hard to keep rates as they are. Markets will rally on that, knowing the next cycle comes soon, but that rally point likely won’t be based on US economic data - The Fed is engaged in a central bank Cold War with China. The aim is to reduce Chinese economic standing, alongside that of Russia, and bolster the US first, then NATO by extension.

The CHIPS act, sanctions on Russia, the phony/needless Ukraine war, green energy policy, tariffs, etc. All of that is working in concert with the US Fed’s monetary policy.

The BBC does a nice job of highlighting - at a high level - just a few of China’s many problems:

www.bbc.com...

Not the least of which has been the ongoing “Zero COVID” policies.

If the Fed keeps rates high, and demand low, China will have material economic problems. From lack of demand, to imported inflation, to societal unrest - it’s bad. So bad that if China started “easing” policy or injecting stimmies then it would only further compound their problems - devaluing their currency further against the dollar. Case in point:

www.scmp.com...

While this isn’t the point of my thread, Russia is already torched. And will be torched further, so long as Putin is in power - which is becoming more of a possibility as time goes on:

news.yahoo.com...

I say that to note that the only real superpower left, that isn’t NATO aligned, is China.

China destroyed their internal service based economy with Zero COVID policies. They now need stimmies desperately, but, that’s untenable. We/Western Europe have them over the economic barrel - and they’re feeling it. CNN (credit where due), summarizes this nicely in the link below:

www.cnn.com...

We know this. They know this. But, if we want to cripple them, we cannot raise rates soon. At least, we can’t raise them until we reach a point such that our economy is in danger. Once we reach a point that societal unrest is coming, or conditions are bad enough, the fed will pivot. Not until then.

I’m in Jeremy Siegel’s camp that the fed has already overtightened. That’s almost certain and is exemplified by ZeroHedge’s post about the dislocation between the BLS employment numbers (bogus) and the Philly Fed’s lagging deep dive on employment:

www.zerohedge.com...

Basically, the headline BLS employment figures are BS. We needed those figures to justify higher rates to shaft China economically, take them down a peg, and realign the world in such a way that America/NATO is/are the clear world power economically. Going a step further, China is definitely not on board with the green agenda - which is one more reason we need to knock them down.

Without seeing the Fed’s actions in the light of a foreign policy play, purely, what they’re doing doesn’t make sense. In fact, bright minds can’t figure out what the Fed is doing - probably because they’re looking at it wrong:

www.zerohedge.com...

The current administration has little interest in fighting wars in the sense of armed conflict. I agree with that, personally. Instead, we fight via sanctions and other financial means. This is evidenced by Russia, energy market manipulation (nordstream, anyone?), Afghanistan withdrawal, and our interest in expanding NATO/materially outfitting more Eastern EU nations with military equipment (or augmenting US bases/forces).

The Fed, then, is the weapon of choice. It is the most powerful institution on Earth. Viewing it as an organization that is only concerned with the health of the US economy, or that if our ally’s, is an incomplete picture at best. “Martin’s Pill” is the proof of this - why do so many Fed Heads seem to “forget” how economics work once they’re in the chair? They don’t forget - they just have other factors to control for that aren’t what your typical American (or investor) would think about.

How could that be! Could the Fed actually WANT a recession? Well, maybe not so much want, as be aware of it and try and soften the blow. I mean, truth is, who cares about the next 12 months? These plays are about the next 20 years - give a little now to get a little in the future. You do that kind of thing when you’re the keepers of economic dominance, globally - and you are willing to give a little now to get a lot down the road.

If we look forward, however, I suspect things will get better in equity markets long before the economy or rates. Markets look forward, not backward, and once the data hits from the Philly fed that unemployment is actually here (and by a lot), and that stagflation has set in, we will see the Fed pause. That pause signals the start of the next cycle. When does that happen? Either in March or April of next year when our own data makes rate hikes untenable - the Fed will acknowledge that - and markets will rip likely at some point in Q2.

To be clear, I doubt the fed wants to create a recession. If anything, once they are convinced that our policy has sufficiently weakened China to a point that we materially regain the upper hand economically, they will pivot. How much damage we do to China is solely dependent on how much our opportunistic (and aggressive) rate hikes work relative to our objectives against the Chinese.

Russia is already set back a generation economically, China is going south, and all we have to do is cut rates and the markets/cycle will take odd domestically.

Markets probably rip at some point in 1H23 (or very close to it), it will catch investors by surprise (Fed hawkish signally is intended to spook China), and the next cycle will begin. They hiked so fast because they know that US investors will have their hands on data that blows their actions out of the water by EQ1 2023. Must do everything possible between now and then if you’re the fed - window of opportunity is closing.

The Fed is engaged in aggressive foreign policy that is intended to, in a way, “Make America Great Again”, but, they’re thinking about our economic dominance a little differently (and frankly, more accurately) than MAGA did.

Just remember to read Chinese economic data - that’s where the story is for the US Fed, in my opinion.

What say you?

The idea of weaponizing a national economy to hurt another nation fits in well with the WEF great reset.

For now all the national economies are too strong for a UN takeover of a central digital currency. But if a royal rumble kicks off and each nation starts fighting with its economy against another, they all end up weaker and the UN is better positioned to take them all out.

As for rates, looks like it is on its way to how it was in the 1980's with all the money printing and inflation going on. But then again maybe not? Just keep the foxes watching the hen house, do nothing about inflation and before too long people will be screaming out for economic stability and begging the UN to step in. If they only knew where that ends up...

originally posted by: kwakakev
The idea of weaponizing a national economy to hurt another nation fits in well with the WEF great reset.

For now all the national economies are too strong for a UN takeover of a central digital currency. But if a royal rumble kicks off and each nation starts fighting with its economy against another, they all end up weaker and the UN is better positioned to take them all out.

As for rates, looks like it is on its way to how it was in the 1980's with all the money printing and inflation going on. But then again maybe not? Just keep the foxes watching the hen house, do nothing about inflation and before too long people will be screaming out for economic stability and begging the UN to step in. If they only knew where that ends up...

If the scenarios you laid out, play out, I’d be shocked - at least in this iteration.

Then again, the only real difference between current state and what you wrote is the formalization of the “UN Bank” or whatever. BOE/ECB/IMF are already rowing with the US - so maybe it’s already the “NATO Central Bank” of sorts.

1. Japan is in a Recession/Depression. It may not look like it in the 4 major cities, but if one goes to Okinawa which use to have a robust tourist industry, it has all but nearly collapsed. Yes, the major big hotels are taking in tourist from the Mainland. The car rental companies will tell you that. The international tourist are left with no car rentals. You need a car in Okinawa.
2. China has a labor shortage the more one goes West in China, you'll see the problem. The young has mostly immigrated to the big cities and quite frankly too lazy to do the families farm work back home. Now there are motivational movies to get the young back into the countryside to do labor work and enjoy it.
3. To understand the under employment in America, one that is both mentally and physically fit, but doesn't earn enough money to rent, just walk the streets after 5 pm and do some interviews. A Japanese guy has done this and its amazing to see how the inner cities have all been decimated with drugs and mentally ill people.
4. High interest rates slow inflation and also stop the crazy printing of money. I was around when interest rates for homes were over 12 percent and 2nds as high as 17%. House prices in California were stable from INFLATION.

America can destroy other countries, but what goes around COMES AROUND

a reply to: VulcanWerks

BOE/ECB/IMF are already rowing with the US - so maybe it’s already the “NATO Central Bank” of sorts.

BIS looks like top dog when it comes to a global central bank. It has been working on smoothing out some of the bumps between national economies for a while. NATO is one big faction when it comes to economic cooperation, BRICS is the other main faction as politics muddies the waters about the concept of 'fair trade'.

originally posted by: kwakakev
a reply to: VulcanWerks

BOE/ECB/IMF are already rowing with the US - so maybe it’s already the “NATO Central Bank” of sorts.

BIS looks like top dog when it comes to a global central bank. It has been working on smoothing out some of the bumps between national economies for a while. NATO is one big faction when it comes to economic cooperation, BRICS is the other main faction as politics muddies the waters about the concept of 'fair trade'.

Fair points.

The only reason I leave out BIS is the very countries i referenced in the OP are also member banks. I doubt China/Russia signed up for this. 😀

BIS for those who are curious:

en.m.wikipedia.org...

"The FED Will Pivot Once China and Russia are Sufficiently Damaged"

Its very likely "FED" wont yet admit that Europe is likely damaged due to the sanctions as their industries wont be the same again..

originally posted by: vNex92
"The FED Will Pivot Once China and Russia are Sufficiently Damaged"

Its very likely "FED" wont yet admit that Europe is likely damaged due to the sanctions as their industries wont be the same again..

The truth won't be on the news. Just go on any chat rooms to find how the English are beginning to suffer. Going to be like Russia once you get out of Moscow. People don't realize the poverty in Russia and the life style of those actually surviving off the land there. Also, very few people go to pubs, they just stay home and drink their vodka. This is the new England life style also.

originally posted by: vNex92
"The FED Will Pivot Once China and Russia are Sufficiently Damaged"

Its very likely "FED" wont yet admit that Europe is likely damaged due to the sanctions as their industries wont be the same again..

The Fed is only part of it.

The current administration is shafting the EU countries on more than one front.

In an odd twist, pretty hard to say this isn’t an “America First” administration with how we’re shafting ally nations.

Hopefully there’s a greater good for everyone on the other side of this exercise. Tough sledding right now.

Pivot only because consumer citizen is quickly if not already lost trust in the whole damn show...
Happy days are here again will never be sung I this country or world with all the rats at the top.

originally posted by: musicismagic

originally posted by: vNex92
"The FED Will Pivot Once China and Russia are Sufficiently Damaged"

Its very likely "FED" wont yet admit that Europe is likely damaged due to the sanctions as their industries wont be the same again..

The truth won't be on the news. Just go on any chat rooms to find how the English are beginning to suffer. Going to be like Russia once you get out of Moscow. People don't realize the poverty in Russia and the life style of those actually surviving off the land there. Also, very few people go to pubs, they just stay home and drink their vodka. This is the new England life style also.

a reply to: VulcanWerks

Shoots in foot with nailgun - now walking in circles...

I am recommending this thread as a great exploration of our situation.

I have little to offer up at this point, but I have a minor observation about this quote:

The Fed is engaged in aggressive foreign policy that is intended to, in a way, “Make America Great Again”, but, they’re thinking about our economic dominance a little differently (and frankly, more accurately) than MAGA did.

I can accept the premise that the FED may be operating as you suggest. While the part about MAGA may be harmonious with the "principles" of those who are "marketers" of the MAGA image. I suspect that a larger proportion of self-described MAGA supporters are not concerned with economy on a global scale, or the status and standing of other countries. What make the novel group enduring is its' simplistic insistence on not letting the "long game" mean deprivation and suffering for the people of their nation now.

And one more...

The FED is NOT America. It never was. I suspect it never will be - unless many things change. The FED is subordinate, ultimately, to the Bank of International Settlement - not American in any way. If the FEDs' actions are 'American' we have already lost our sovereignty.

a reply to: VulcanWerks

Without being political, Joe Biden isn’t a leader. He rides on the coattails of others. His career defining piece of legislation destroyed the inner cities and subjected the residents to generations of economic instability and crime. I am certain he was the brainchild of Cash for Clunkers which served to destroy affordable upgrades in reliable transportation to the economically disenfranchised…including the same people he created with his other bill.

America First policies are imperative now. Without domestic production, there is a stagnation of domestic wealth at best. If the average house payment is more than 50% of a household’s income, then the price of the house either decreases or isn’t purchased. The owner takes the hit in either case. The buyer either gets a deal or continues to rent. Simple economics…

Now if the potential buyer has low opportunity to wage increases because a stagnant market dissuaded investment because “house didn’t sell” then a spiral begins. Simply put, you can’t buy a McMansion on a McJob. Basically you can’t build a car, if I can’t forge a wrench for you to turn because nobody dug up some ore for my supplier to smelt into steel for me. Not that guy that couldn’t sell his house can buy a car either.

But they all did in China until the Covid freak out.

originally posted by: Maxmars
I am recommending this thread as a great exploration of our situation.

I have little to offer up at this point, but I have a minor observation about this quote:

The Fed is engaged in aggressive foreign policy that is intended to, in a way, “Make America Great Again”, but, they’re thinking about our economic dominance a little differently (and frankly, more accurately) than MAGA did.

I can accept the premise that the FED may be operating as you suggest. While the part about MAGA may be harmonious with the "principles" of those who are "marketers" of the MAGA image. I suspect that a larger proportion of self-described MAGA supporters are not concerned with economy on a global scale, or the status and standing of other countries. What make the novel group enduring is its' simplistic insistence on not letting the "long game" mean deprivation and suffering for the people of their nation now.

And one more...

The FED is NOT America. It never was. I suspect it never will be - unless many things change. The FED is subordinate, ultimately, to the Bank of International Settlement - not American in any way. If the FEDs' actions are 'American' we have already lost our sovereignty.

Fair point on MAGA. I, too, doubt that the typical “MAGA” follower is concerned in this way. In fact, your point about the long game is perfectly emblematic of the resistance to change (of most any form) despite the fact that change is the only constant.

My reference was more to say “MAGA” in a very neocon/neoliberal sense. Globalism is entirely a part of that venture.

As far as sovereignty goes, I’d say a case could be made we’ve lost a lot of it - at least financially. Said another way, our corporations are multi-national. online retail is multi-national. Manufacturing, banking, accounting, aerospace, and more - all multinational.

We have sovereignty in some ways, but financially, that’s pretty well gone aside from Gov spending.

That said, the tenor of the EU countries towards the US is pretty aggressive of late. I suspect the US led on this initiative or acted unilaterally - and is mending the fences by distributing arms all over Western Europe.

Europe will get paid back, I think. It just depends on how.

The FED doesn't control interest rates, those are controlled by market forces same as in Bagehot's day. The FED pretends to influence rates by simply following the $US02Y and the Effective Fed Funds rate. Central banks have a little more control now than they did over market forces in 1860s, but its nominal at best.

Interest rates went up because there's a demand for money. It's that simple.

fraser.stlouisfed.org...

a reply to: DarthTrader

I do understand what your saying (I think) and I appreciate the historical context of your link.

But I wonder, with the Fed standing at the epicenter of a monopoly on monetary policies (central bank-wise world-wide) doesn't their pretense ring untrue... given that they are the actual source of the "money" which is in demand? Are the not actually 'causing' the pressure they pretend to be 'reacting to?"

Not a financial person asking... just a layman who would like to know.