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Tuesday, September 15, 2015

Why Fed Rate Hikes Are Truly Laughable...But The World Isn't Laughing

I believe the Fed has not been entirely truthful with us. Said another way, the Fed has lied by omission for decades. The lie is that the economy is incredibly difficult to understand and likely requires a PhD to enter the conversation. Some rudimentary research begs to differ. The research suggests the Fed has simply been reacting to and fighting demographic changes for 65 years despite all their obfuscation and contradictory banter.

Fast rising core population growth (representing highest order consumption increases) was offset with rising rates until 1980. Subsequent, slowing core population growth coincided with lessening rate hikes. Then the collapse in annual core growth since '06 has seen the long-term implementation of ZIRP and QE. However, core population growth only goes down from here, according to OECD estimates, every year till 2025. And that presumes continued significant immigration, general economic well-being supporting family formation, boosting birthrates. If immigration wanes or economic conditions worsen, the population growth numbers could get far lower or outright negative. The idea the Fed would begin a rate hike cycle into collapsing core population growth is hard to fathom.

One look at that chart and it's obvious why sustained Fed interest rate hikes are a ludicrous topic given the linkage of core population changes and FFR changes.  Core population growth is set to see its slowest decade since prior to WWII.

But just in case you would like more evidence...the below chart shows the 15-64yr/old annual population change (yoy) vs. federal funds rate and the debt incurred due to the lower rates.
And below core US population peaking shortly followed by peak oil consumption...and the substitution of debt to sustain consumption.  But this slowing core growth cycle has at least another decade to go in the can only surmise the implications for consumption (oil and otherwise) and debt when annual population growth has declined by 95% from peak.

It's easy to see why the Fed finds it's moved itself into checkmate but unfortunately, "we the people" will be the losers of the Fed's horrendously played game.  Why the Fed and Federal Government made what was always going to be a hard transition into a catastrophe...we can only guess.  Why the Fed chose to make economic good times great and save nothing for the inevitable "reversion to the mean" will be the stuff of history.

BONUS - The rest of the world goes through variations on the same theme and the interwoven global finances and economies that helped pull one another go in reverse.






BRAZIL - Core population peaked in '99 and goes negative in 2029.

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  1. Why? Hubert Humphrey and Augustus Hawkins and Jimmy Carter. Pro Union people. I was there. Humphrey had a hard core union mentality. This act alleviated congress of responsibility for the economy and gave it to the Fed. Union people back then believed they had a right to a job; that the government had to guarantee it. And they felt that congress wouldn't, and couldn't do it. It was so easy to just hand it over to the Fed to stimulate the economy.

  2. Absolutely awesome presentation. Five minutes reading this post and perhaps a few hours reading your other posts should be sufficient to convince anyone that centralised control has, once again, failed.

    However, most people won't read it. If they did, their conditioning would easily delude them into believing the author was a gdp/demographic/end of the world nut.

    A tiny handful of people will read it and recognise the authors gift at analysis AND presentation.

    Seriously, the more people read this, the less likely WW3 becomes.

  3. I went into the Watts riots (yes, I am that old) to help rescue someone. The boy's location was supposed to be on the edge of the rioting. Maybe it was. But there were thousands of people all over. A mortally wounded man lying on the sidewalk. Civil disruption has happened and is possible. Welfare won't necessarily stop it but if it does get cut off because of an economic meltdown, it will happen and it will be bad.

  4. It doesn't matter if others read and believe or ignore it. The above analysis is in agreement with what I am seeing. The question is what action the fools at the FED take next.
    In my view, the reason for the actions of the FED, is that a shrinking state, fewer people with less spending power is unacceptable to corporate America, both in terms of their ambitions and debt to service.


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