The Price of Interest Rate Manipulation

Its pretty obvious theres no such thing as being able to see the near future. Or is there? From what I can gather there is no Grays Sports activities Almanac like in Back to the Future Part II, with the outcomes of events later on.

But some extraordinary people have an uncanny ability to predict what will happen in the future. Currency Wars author as well as Strategic Intelligence Strategist Jim Rickards is one such individual.

And what Jims uncanny ability seems to be is predicting whats going to happen in world economies. Sometimes I believe Jim might even have a secret copy of Grays Economic Almanac and hes simply not letting on

While the world was with the US to hike rates in September Jim suggested they wouldnt. And below youll observe exactly why he made that call and was right.

Furthermore youll also see Jims long term strategic view of the actual Feds actions, and the five options he thinks theyre going to have. And then whatever the Fed does end up doing will be a tradeoff between their credibility or catastrophe.

Regards,

Sam

The Cost of Interest Rate Manipulation

By Shae Russell, Editor, Strategic Intelligence

The Fed won’t raise interest rates. Thats something Ive said for a long time.

This statement is acquainted to subscribers of Strategic Intelligence. It sounds exactly like something, their own strategist, Jim Rickards would say.

In reality, its exactly what he said to the Mastening numbers on the Monday night before the actual Liberal party changed leaders.

As most Aussies were tweeting libspill memes, Jim was chatting to The Business concerning the implications of the looming Federal Reverse Bank meeting now.

I highly recommend you watch the interview.

Now, this interview took place before the September Federal Open Marketplaces Committee. When you watch the job interview, its clear that Jim was confident thered be no rate increase from the Fed which month.

However, he did discuss something called the October Surprise.

Now the Fed meets eight times annually. But they only hold the press conference four times annually. As a general rule, the Fed has a tendency to raise rates at the same time a press conference is planned.

After this last meeting, the actual Fed wont have another push conference until December this year.

Yet, as Jim explains in the interview, last year the Fed had a teleconference practice run during the Northern hemisphere spring.

The marketplaces and most in the mainstream for that matter wouldnt expect it because theres absolutely no scheduled press conference. Therefore, the October surprise.

At the time, Jim felt the Given may risk saving face and dump an Oct Surprise on the US market.

In saying that, he believes any kind of rate rise this year is unlikely. 2016 is still a possibility, however, as Jim explained to subscribers associated with Strategic Intelligence on Wednesday, the Given have until March 2016 in the event that its dependent on economic data.

While Jims suggesting to look out for the unexpected, he or she reckons the Fed missed the actual boat to raise rates.

They could have done so gradually over This year and 2011. If the main bankers had used this opportunity to raise rates, thered be room in the US economy to tighten monetary policy today.

The fact is, they didnt.

Today the US is faced with frail economic numbers. Jim states the, Employment rate has come lower, but labour force participation is lousy. The labour force declined last month as well as real wages are going nowhere. In fact, monthly job creation is going nowhere. If you look in the data behind the pleased talk, the [economic] data is very fragile in the US.

As a result, Jim believes the Fed has five choices.

1. Fire up those printing presses and start printing money once again.
2. Establish negative interest rates. Although Jim thinks this move is highly unlikely.
3. Helicopter money. This is where the united states runs bigger budget deficits and the Fed buys the bonds. Money printing having a purpose, Jim calls this.
4. The Fed changes its forward guidance. Since spring the government Reserve has put the market upon notice that a rate rise could happen at any moment. Jims says the Fed could change the speak with being data dependent rather than this difficult talk we get now.
5. And the ultimate tool currency wars. That is, cheapen the dollar at all costs. The problem as Jim explains within the interview is that this move may put pressure on countries like Australia and China that are trying to weaken their own currencies.

In saying that, the Given might have these choices, however Jim doesnt see the Fed with them at this point.

However, the biggest take away from the ABC interview is what occurs if the Fed doesnt raise rates after all the tough talk.

Jim views it coming down to either causing a meltdown in the US and rising markets by raising rates, or accepting that they shed their credibility.

The Fed need to choose between their credibility or a catastrophe. People are saying if they dont raise rates, when theyve been talking it up for so long, theyll lose their credibility. However the data is weak so if they do raise rates theyll cause a catastrophe.

Pushed on the point further, Jim tells the ABC: They will need to leave their credibility in shreds to avoid a catastrophe.?This is the price of manipulation.

Regards,

Shae Russell

Editor, Strategic Intelligence

Ed Note: the over article first appeared like a Strategic Intelligence weekly update (16 September 2015)