How Big A Bubble Can The Fed Blow And How Low Can Interest Rates Go?

September 2, 2020: NASDAQ reaches an all-time closing high of 12,056.44.

Twelve years prior, on the same date in 2008, the NASDAQ was still recovering from the dotcom meltdown and 9-11 attacks, closing at 2,349.24. Six months later, the NAZ would find itself at nearly half that value, 1,268.64, as the sub-prime crisis took its toll. If you bought at the high in 2008 and held, your annualized return is 14.6% compounded. If you bought at the low, it's 20.65% and your investment is worth nearly 10 times what you paid just 12 years ago. That is simply not realistic.

Following both the dotcom/9-11 and sub-prime declines, the Federal Reserve stepped up and adjusted markets so that they would recover via cuts in the federal funds rate. In 2000, the Fed cut the rate from 6.5% to 3.5% just before 9-11. After that, the Fed reduced the federal funds rate first by a full percentage point, and eventually all the way down to one percent.

The one percent rate - which was supposed to be temporary - did last only one year, from July 2003 to June 2004, during which time the US engaged in a war with Iraq. Then, the Fed embarked on a series of 25 basis point raises, peaking out at 5.25% from July 2006 to July 2007. After that came sub-prime, and the Fed dropping its key interest rate rapidly. Over the course of the next 17 months (August 2007 to December 2008) the Fed lowered the federal funds rate all the way down to a range between 0.00% and 0.25%.

Again, this historic ultra-low interest rate was supposed to be temporary, but this time, temporary was longer. Stretching from December, 2008 until December, 2015, the Fed kept the federal funds rate at whats now known as the "zero-bound," a range between 0.00% and 0.25%.

When the Fed thought the economy was strong enough for it to increase interest rates again, they began a series of 0.25% hikes. From December, 2015 to December, 2018, they managed to get the federal funds rate back up to a range between 2.25-2.50%. with the economy faltering again, they cut, from July to December, 2019, by one percent, back to 1.25-1.50%.

At the end of February, 2020, the rate stood at around 1.50%, but along came the coronavirus and the Fed, in two swift moves, knocked their key rate all the way down to 0.00-0.25% again, the actual rate steadying between 0.05% and 0.10%, where it remains today. Stocks, which fell off the table in March, have recovered to make record highs in the NASDAQ and S&P, with the Dow getting to within two percent of its previous all-time high.






Once again, this zero-bound rate is supposed to be temporary. Bear in mind that the first temporary cut lasted a year, but the second - from 2008 to 2015, lasted seven years. The current low rate may, extrapolating from past experience, may last 40 years or longer, though the Fed has hedged itself via all manner of bond-buying schemes they call "facilities" designed to keep America's big business - and the rest of the world - afloat. In that case, most of the people invested in stocks will be dead or dying, the world and its broken markets handed off to new generations.

Snapping back to reality, the Fed can't actually keep its key rate at zero for 40 years and everybody knows that. They are faced with two bad choices: 1) follow Japan and Europe into the land of negative rates, or 2) do nothing and hope for the best.

The Fed does have two other options, and they are similar. One is to scuttle the whole facade of currency created at interest, backed by nothing and return to a standard of currency backed by something tangible, like gold or silver, or, scrap it all and introduce a currency again created by debt and backed by nothing, but this time make it digital, with no actual coins or bills, a cryptocurrency, like Bitcoin.

That last option is the one they're likely to take, it being the easy way out, where they don't have to admit their abject failure, and one in which they could conceivably - in their boxy, self-centered minds - keep interest rates at or near zero for 40 years or longer. Or at two percent, or five. After all, they control the currency and all aspects of it. They can do whatever they like.

Not to put too fine a point on it, but such an action by the Fed would be disastrous for just about everybody. As it stands today, most people are completely unsure about the future, be it the next month, next year or next decade. More people are out of work than ever before (go ahead, include welfare, disability and other government non-work programs in an unemployment calculation and see what you get), and the economy of not just the United States, but the whole planet, is in the toilet and about to be flushed.

If the Fed replaces the dollar with a cryptocurrency, a "digital dollar," they're also likely to introduce some form of UBI, or Basic Universal Income. They will pay people not to work.

Adam Smith, the father of modern economics, based his theories on three forms of capital: labor, currency, and hard assets, the most important of which was labor. If the Fed - which has already reduced the value of currency to zero - institutes UBI, they'll have taken away the second leg of the three-legged stool which is economics, labor, and reduced its value to nothing. An economy, be it local, national, or global, cannot stand on a one-legged stool, the remaining leg being hard assets, those being business equipment and facilities, land, gold, and silver.

Adamant about keeping nothing but the fiat currencies of the world functioning, the Fed will take quite the circuitous route to asset-backed currency and restoration of the value of labor. In the interim - be it four years or 40 - the global economy will crash and burn. The Fed - itself a private bank owned by people and institutions veiled off from the general public - and their central bank allies - will buy up everything of value for pennies on the dollar, a dollar which they themselves created. It's the worst and most devastating scam in the history of the world and it's unfolding right before our tired eyes.






Naturally, the Fed's plans do not operate in a vacuum. There are other pieces to their twisted puzzle, most significant among them the will of individuals and groups of individuals opposed to he ongoing destruction of the currency, the economy, and their lives.

We see it already in the "prepper" movement, Marxist ANTIFA and BLM protesting, looting, and rioting, goldbugs, silver stackers, and those who have opted out, returned to land and water, to farming, to a subsistence lifestyle.

Therein lies the future. The vast majority of people on planet Earth, perhaps as many as 95% of them, have no idea of what has been happening or is occurring. They will be the beneficiaries of the new world order of cryptocurrency, universal basic income, fast food made from GMO elements or worse, centralized media and educational propaganda, the big pharma medical monopoly, and what basically amounts to slavery.

People who believe they have a choice will try to take different paths to the future but they will be largely on their own because they are vastly outnumbered by those who don't believe they have any choices.

Take a look around. See how many people are wearing masks. See how few aren't and there are your answers to today's headline. Interest rates cannot go any lower (though they might), and the Fed bubble can be enormous. As large a bubble they blow, it is likely to be their last.

The NASDAQ is fewer than 900 points off its all-time high. It will almost certainly exceed that number, probably within weeks. The value of stocks has never been so extreme and all of it because the Federal Reserve has managed to decimate the purchasing power of the currency - the US dollar - by 98% since its inception in 1913.

Good luck with your stocks and bonds, all electronic, trapped in investment vehicles which you neither own nor control, and of little to no real value. In the long run, they will buy nearly nothing.

At the Close, Tuesday, September 15, 2020:
Dow: 27,995.60, +2.27 (+0.01%)
NASDAQ: 11,190.32, +133.67 (+1.21%)
S&P 500: 3,401.20, +17.66 (+0.52%)
NYSE: 12,967.18, +34.50 (+0.27%)