The Fed Won’t Back Down…

McAlvany Recap • Oct 25 2022
The Fed Won’t Back Down…
MPM Posted on October 25, 2022

Among the political mandarins of the U.S., there is seldom any humility or apology in the aftermath of decisions that harm millions of Americans.

The Fed, at least, has tacitly admitted its mistake in letting inflation run too hot for too long by going after it with a vengeance. But its raising of interest rates so fast is causing even more problems. Foreign countries, companies, and individuals who have taken out loans in dollars are having difficulty making payments on those loans. Bond prices are way down, and equities—already facing headwinds—are deeply affected by the Fed’s withdrawal of easy money. 

But it seems that easy money has made soft people of many of us. Leaders in government, banking, and commerce do not know how to deal with constraints on the money supply. Hard times require hard decisions, not to mention wisdom and experience. And all of these things come from dealing with hard times. We just haven’t had them—not monetarily, at least.  

 Key Takeaways: 

  • The worldwide story continues to be dominated by money and war 
  • The Fed shows no sign of backing down from its inflation-fighting interest rate increases 
  • Some of the world’s central banks are showing signs of losing control 


The McAlvany Weekly Commentary: This week’s program focused on control and its loss—whether it be boys with pressurized flammable liquids or central banks with interest rates. Control can be a wonderful thing or a horrible thing, and the same can be said of its loss. What brought this subject up? Well, lately it’s been the Bank of England and its gilt trip, but this week’s conversation was sparked by the Bank of Japan. Central banks worldwide are under extreme pressure. Much of the pressure comes from the Fed’s inflation-fighting raising of the interest rate. Go to MWC to hear or read this timely discussion. 


Credit Bubble Bulletin: Doug writes briefly of the troubles caused by unsound money—up to and including war. And he discourses briefly on Japan as well. But his big guns are trained on China this week. He discusses the historic shift, now in progress, of the country from a focus on economics to one of politics and security. What will that mean for the world. Quite a bit—in a very big way. Be sure to read this week’s CBB for Doug’s insights. 


Hard Assets Insights: Big brothers often urge their little brothers to “go ahead and do it” when they want to see what will happen but are too smart to do “it” themselves. In the same way, JPMorgan’s trading desk is urging investors to “buy the dip” now. HAI is a bit more cautious, noting—with JPMorgan, ironically—that “every HF and mutual fund is positioned defensively,” which might be a good reason to tread carefully. 

 Meanwhile, consumers continue to take it on the chin. Many are taking two jobs, moving to lower-cost-of-living areas, or otherwise trying to survive punishing inflation. Housing and automobile buying are down precipitously. Commodities are variously up, down, or sideways, wending their tortured way through these difficult economic times. Be sure to read Morgan’s latest posting for the amazing insight.  


Golden Rule Radio: Doing a solo act in the studio this week, Miles takes a close look at the charts for gold and believes its downward trajectory has a bit further to go. Far from a cause for worry, though, he shares his philosophy—which he advocates to clients—that such down episodes are wise times to buy gold. Stating that it’s a good practice to buy gold with multiple purchases as it is falling (rather than trying to determine the bottom and go all-in), but in significantly higher than amounts than you are spending on equities. Be sure to tune in for Miles’ long-term thoughts on gold, as well as his analysis of silver.  

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