Latest / Financial Survival Network / Fed’s Next Move: Rate Cuts, Inflation, and Market Mayhem - Todd Sheets #6327

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Fed’s Next Move: Rate Cuts, Inflation, and Market Mayhem - Todd Sheets #6327 · Financial Survival Network

• 0:00
  Speaker 1: For what it's worth. You know, there's a lot of
• 0:01
  Speaker 1: pressure from the administration for them to go bigger. My
• 0:05
  Speaker 1: guess would be they would go twenty five basis points.
• 0:08
  Speaker 1: There's this, you know, dual tensions between what's happening in
• 0:12
  Speaker 1: the jobs market, which is soft and getting more soft,
• 0:16
  Speaker 1: which is one thing they monitor.
• 0:18
  Speaker 2: But on the other.
• 0:19
  Speaker 1: Side of the equation, you know, they're also monitoring inflation,
• 0:23
  Speaker 1: which has basically been sticky and has not continued to
• 0:27
  Speaker 1: decline since they started cutting rates last year when they
• 0:31
  Speaker 1: made three rate cuts. And I think they went too
• 0:33
  Speaker 1: far last year, which is why we've seen inflation stay
• 0:38
  Speaker 1: in these upper two point seven percent two point eight
• 0:41
  Speaker 1: percent kind of range where it's been here recently.
• 0:43
  Speaker 3: You were listening to Carrie Let's's Financial Survival Network, where
• 0:47
  Speaker 3: you get valuable information you just can't find anywhere else
• 0:51
  Speaker 3: to thrive in today's trying times. You need the Financial
• 0:55
  Speaker 3: Survival Network now more than ever. Go to Financial Survival
• 1:00
  Speaker 3: Edward dot com and get your free newsletter in gift
• 1:03
  Speaker 3: Financial Survival Network now more than ever.
• 1:11
  Speaker 2: And welcome you are listening to and watching the Financial
• 1:14
  Speaker 2: Survival Network. I'm your host, Carrie Lutz with us today
• 1:19
  Speaker 2: is a new guest, Todd Sheets, Todd fellow newsletter writer.
• 1:24
  Speaker 2: You find him on YouTube at on Wealth and Progress,
• 1:30
  Speaker 2: as well as his site, which is toddsheetswriter dot com. Tod,
• 1:36
  Speaker 2: it's great to have you on the show. So hey,
• 1:39
  Speaker 2: it's Monday, September fifteenth. The world is anxiously awaiting the
• 1:44
  Speaker 2: upcoming Federal reserve interest rate cut and is it too little,
• 1:50
  Speaker 2: too late? What's the game here?
• 1:53
  Speaker 1: Yeah, a couple of different perspectives, Carrie. I mean, first
• 1:56
  Speaker 1: of all, I'm in the camp that, you know, after
• 2:00
  Speaker 1: two hundred years of learning that central planning doesn't work,
• 2:04
  Speaker 1: it does not make sense for us to continue to
• 2:06
  Speaker 1: have you know, we can either a small body of
• 2:09
  Speaker 1: people of twelve people, or more practically, one person deciding
• 2:13
  Speaker 1: what the cost of short term borrowing should be for
• 2:16
  Speaker 1: a nation of three hundred and forty million people. We
• 2:19
  Speaker 1: would be far better off if those short term interest
• 2:23
  Speaker 1: rates were set in the marketplace without government interference. But
• 2:27
  Speaker 1: that's not the world we're in. So that raises the question,
• 2:30
  Speaker 1: you know, what are they going to do? What should
• 2:32
  Speaker 1: they be doing? It seems pretty clear that they're going
• 2:36
  Speaker 1: to cut at least twenty five basis points for what
• 2:40
  Speaker 1: it's worth. My guess would twenty five to fifty is
• 2:43
  Speaker 1: kind of the range for what it's worth. You know,
• 2:45
  Speaker 1: there's a lot of pressure from the administration for them
• 2:48
  Speaker 1: to go bigger. My guess would be they would go
• 2:51
  Speaker 1: twenty five basis points. There's this, you know, dual tensions
• 2:55
  Speaker 1: between what's happening in the jobs market, which is soft
• 3:00
  Speaker 1: and getting more soft, which is one thing they monitor.
• 3:03
  Speaker 1: But on the other side of the equation, you know,
• 3:05
  Speaker 1: they're also monitoring inflation, which has basically been sticky and
• 3:10
  Speaker 1: has not continued to decline since they started cutting rates
• 3:15
  Speaker 1: last year when they made three rate cuts, And I
• 3:17
  Speaker 1: think they went too far last year, which is why
• 3:20
  Speaker 1: we've seen inflation stay in these upper two point seven
• 3:24
  Speaker 1: percent two point eight percent kind of range where it's
• 3:27
  Speaker 1: been here recently. My personal view on this, you know,
• 3:30
  Speaker 1: aside from not having a small group of people setting
• 3:34
  Speaker 1: interest rates, is the bigger risks for the economy are
• 3:39
  Speaker 1: on the inflationary side of things. If if inflation gets
• 3:44
  Speaker 1: back out of the bottle again and the FED is
• 3:49
  Speaker 1: running monetary policies that are too weak, that is I
• 3:53
  Speaker 1: think the most potentially disrupting thing that could happen to
• 3:57
  Speaker 1: the agenda of the administration and to the economic recovery
• 4:01
  Speaker 1: that we'd like to see. You know, then they've got
• 4:03
  Speaker 1: to push rates back up meaningfully, and you know, we're
• 4:07
  Speaker 1: going to look at issues in the marketplace with housing
• 4:09
  Speaker 1: prices and all those kinds of things. So i'd i'd
• 4:12
  Speaker 1: air on the side of caution at this point in time.
• 4:15
  Speaker 1: Like I said, I think they they were too aggressive
• 4:17
  Speaker 1: and easing last year before they really got the inflation
• 4:21
  Speaker 1: rate back down to where it should be or lower,
• 4:24
  Speaker 1: which is two percent or lower.
• 4:26
  Speaker 2: All right. So one of the ways that we kind
• 4:29
  Speaker 2: of see the public's reaction is precious metals prices, and
• 4:36
  Speaker 2: today we're hitting new highs yet again. You know, silver,
• 4:42
  Speaker 2: which is the one that I'm following closer than gold
• 4:45
  Speaker 2: right now. It's forty two thirty eight, up twenty nine cents.
• 4:49
  Speaker 2: Gold is up twenty two ninety to thirty six sixty
• 4:53
  Speaker 2: four according to kit Goo. So the market's kind of
• 4:57
  Speaker 2: speaking now, isn't it.
• 4:59
  Speaker 1: Yeah, And you know, I think the biggest fear out
• 5:02
  Speaker 1: there has to be when we are running these chronic
• 5:05
  Speaker 1: budget deficits of six percent or higher. The fear is
• 5:10
  Speaker 1: is that the Fed is going to monetize those deficits
• 5:15
  Speaker 1: by holding rates too low and or also buying a
• 5:19
  Speaker 1: federal debt, and that that is an inherently inflationary stance
• 5:25
  Speaker 1: for the Fed to be in, and that's a very
• 5:27
  Speaker 1: highly justified fear. I mean, this has been the problem
• 5:32
  Speaker 1: for central banks going back centuries. If we go back
• 5:36
  Speaker 1: to the seventeen hundreds, you know this was happening repeatedly
• 5:40
  Speaker 1: in Europe. As one country would go to a war
• 5:43
  Speaker 1: with another one, they would start to borrow money. The
• 5:46
  Speaker 1: central bank, whether it was England or France or Germany
• 5:50
  Speaker 1: or whomever, would print money to help monetize those debts.
• 5:54
  Speaker 1: The currencies would devalue, and it got to the point
• 5:58
  Speaker 1: where lenders were refusing to loan money to these European
• 6:04
  Speaker 1: governments because this was a repeating cycle. And that's finally
• 6:07
  Speaker 1: what drove Great Britain onto what became known as the
• 6:11
  Speaker 1: classical gold standard. Isaac Newton was actually involved in that
• 6:16
  Speaker 1: as Master of the Mint in the late seventeen hundreds,
• 6:20
  Speaker 1: and the classical gold standard basically lasted throughout all of
• 6:24
  Speaker 1: the eighteen hundreds and into the early nineteen hundreds, and
• 6:28
  Speaker 1: it helped fuel the greatest economic boom in the history
• 6:34
  Speaker 1: of the world, you know, to better than anything before
• 6:37
  Speaker 1: then and anything since then. Was this classical gold standard,
• 6:41
  Speaker 1: and the US was effectively on it for most of
• 6:43
  Speaker 1: that period of time other than during the Civil War,
• 6:47
  Speaker 1: and you know, we benefited more than anybody else. So,
• 6:50
  Speaker 1: you know, in terms of the fear in the marketplace,
• 6:53
  Speaker 1: I think the reason that you've seen longer term rate
• 6:56
  Speaker 1: stays stubbornly high, and you're seeing these issues with precious
• 6:59
  Speaker 1: metal is because you know, everybody's worried that these chronic
• 7:04
  Speaker 1: deficits are going to end up pushing the FED to
• 7:07
  Speaker 1: do the same things central banks have done throughout history.
• 7:10
  Speaker 2: Yeah, It's like, no matter what the problem, no matter
• 7:13
  Speaker 2: what the perceived ill, the solution to the FED is
• 7:18
  Speaker 2: always the same, print money. Right, even when they're raising rates,
• 7:23
  Speaker 2: they're still printing money.
• 7:24
  Speaker 4: Right, Yes, I mean in certain periods, Yes, And this
• 7:27
  Speaker 4: has been an especially you know, difficult or egregious problem
• 7:33
  Speaker 4: for the last twenty to thirty years. They played a
• 7:35
  Speaker 4: big role in created the housing bubble, and then in
• 7:39
  Speaker 4: the after the bubble, when the Great financial Crisis came,
• 7:42
  Speaker 4: they went back to the same playbook throughout the twenty tens,
• 7:46
  Speaker 4: which started pushing housing crisis back up. It's pushed stock
• 7:50
  Speaker 4: prices to PE multiples that are all time highs.
• 7:54
  Speaker 1: Other than in a bubble. Kind of in a non
• 7:57
  Speaker 1: bubble environment, we've seen higher PE multiples the peak of
• 8:00
  Speaker 1: a bubble, but other than that, and so it's been
• 8:04
  Speaker 1: a very dangerous playbook for a long time here, and
• 8:08
  Speaker 1: for a while through the twenty tens, they got away
• 8:10
  Speaker 1: with it for a couple of different reasons which have
• 8:14
  Speaker 1: now you know changed. One was all the offshoring to
• 8:17
  Speaker 1: China and the low wage labor over there and going
• 8:20
  Speaker 1: hand in hand with that and the Great Financial Crisis,
• 8:23
  Speaker 1: we had very high rates of unemployment that persisted and
• 8:27
  Speaker 1: started coming down gradually later in the decade. But all
• 8:30
  Speaker 1: those things weighed against inflation, and so, you know, they
• 8:34
  Speaker 1: kind of were able to get away with it without
• 8:36
  Speaker 1: triggering consumer price inflation. But through this whole period of time,
• 8:41
  Speaker 1: that money has to go somewhere, and it was going
• 8:43
  Speaker 1: into housing, which is why we have a huge affordability
• 8:46
  Speaker 1: crisis right now because housing prices went up so much
• 8:50
  Speaker 1: faster than incomes were going up, which was not the
• 8:53
  Speaker 1: historical norm in the past. And then we've had this
• 8:56
  Speaker 1: run up in stock prices and in these precious metals,
• 8:59
  Speaker 1: in that kind of thing. So, yeah, this has been
• 9:02
  Speaker 1: a recurring problem throughout history, and an especially big problem
• 9:06
  Speaker 1: over the last twenty plus years.
• 9:07
  Speaker 2: Could not agree with you more here, And so what's
• 9:10
  Speaker 2: the solution, abolished to FED?
• 9:13
  Speaker 1: Yeah, well, yeah, I think that would be the solution
• 9:16
  Speaker 1: is abolish to FED. Get back to a situation where
• 9:19
  Speaker 1: we have short term interest rates being set in the
• 9:23
  Speaker 1: marketplace like most other prices in the system, you know,
• 9:27
  Speaker 1: and that is the place where you have millions and
• 9:32
  Speaker 1: millions of daily transactions taking place between borrowers and lenders,
• 9:38
  Speaker 1: and all of those transactions are determining where short term
• 9:42
  Speaker 1: rates should be, what lenders are willing to lend at
• 9:45
  Speaker 1: given their concerns about inflation, what borrowers are willing to
• 9:48
  Speaker 1: borrow at based on what makes sense for their business.
• 9:52
  Speaker 1: And instead of letting the marketplace discover the right interest
• 9:56
  Speaker 1: rate like we ideally do with most other I is
• 10:00
  Speaker 1: in the system, we've got this intervention where the FED
• 10:03
  Speaker 1: is trying to either pump up or restrain or hold
• 10:08
  Speaker 1: the perfect rate. It just makes no sense, I mean,
• 10:11
  Speaker 1: and it hasn't worked. If we had gone down this
• 10:13
  Speaker 1: path and we had, you know, sixty seventy years of
• 10:19
  Speaker 1: you know, great results. That'd be one thing, but we don't.
• 10:21
  Speaker 1: We have sixty seventy years of runaway inflation in the
• 10:25
  Speaker 1: nineteen seventies, which they finally got under control in the
• 10:29
  Speaker 1: late nineteen eighties. You know, they started working on it
• 10:32
  Speaker 1: in the early eighties. It finally got things back down
• 10:34
  Speaker 1: in line. In the late eighties. Things were relatively good
• 10:37
  Speaker 1: for about a ten year period of time there, but
• 10:40
  Speaker 1: then they went back to the same playbook, and you know,
• 10:43
  Speaker 1: that gave us the housing bubble and then it gave
• 10:45
  Speaker 1: us the affordability crisis.
• 10:47
  Speaker 2: So true spoken like a true Austrian economis there.
• 10:51
  Speaker 1: It's yeah. I'm a big fan of those guys.
• 10:53
  Speaker 2: Actually were our friends over at mysis dot org and
• 10:59
  Speaker 2: Tom Dealer, Lorenzo good friends of the show here and
• 11:03
  Speaker 2: the really stand up people. They're also being suppressed by
• 11:07
  Speaker 2: a certain digital platform who will go nameless, but suffice
• 11:13
  Speaker 2: it to say, you are watching this or listening to
• 11:17
  Speaker 2: this video on that very platform now, so that should
• 11:20
  Speaker 2: tell you everything you need to know. Hey, so we're
• 11:25
  Speaker 2: not gonna we're not really going to see any of
• 11:30
  Speaker 2: this take place until there's an out and out disaster,
• 11:33
  Speaker 2: are we Yeah.
• 11:34
  Speaker 4: You know.
• 11:34
  Speaker 1: The sad thing is we've had disasters. I mean, the
• 11:36
  Speaker 1: housing bubble was an enormous disaster, and you know, the
• 11:40
  Speaker 1: inflation of the nineteen seventies. But unfortunately, it's like this.
• 11:45
  Speaker 1: The fed's role as this interventionist in this entity trying
• 11:51
  Speaker 1: to manipulate the economy evolved so slowly, and it basically
• 11:56
  Speaker 1: evolved out of their failure during the Great Depression. You know,
• 11:59
  Speaker 1: the was originally formed, like we were talking about earlier
• 12:04
  Speaker 1: in the early nineteen tens, with the purpose of providing
• 12:08
  Speaker 1: liquidity to the system to help avoid isolated bank failures
• 12:13
  Speaker 1: from turning into panics. And that was their objective and
• 12:17
  Speaker 1: then their primary purpose, and we got to the Great
• 12:20
  Speaker 1: Depression and they failed to fulfill that mission. This was
• 12:24
  Speaker 1: Milton Friedman and Anna Schwarz, Yeah, which showed that the
• 12:29
  Speaker 1: fed's failure to do the job it had been created
• 12:32
  Speaker 1: for was what turned the Great Depression into probably the
• 12:36
  Speaker 1: worst downturn in the history of the country. So, in
• 12:40
  Speaker 1: part because of the fed's failure, FDR comes in and
• 12:43
  Speaker 1: with the brain Trust, they start experimenting with these massive
• 12:47
  Speaker 1: interventions one of which was to do the job that
• 12:51
  Speaker 1: intended to do the job that the FED had failed,
• 12:54
  Speaker 1: which was deposit insurance. So they said, okay, well we're
• 12:57
  Speaker 1: going to put deposit insurance on anything, and that effectively
• 13:00
  Speaker 1: I mean to some extent. I mean, the truth of
• 13:02
  Speaker 1: the matter is, by all measures, the number of bank
• 13:07
  Speaker 1: turns were probably at their nator in early nineteen thirty
• 13:11
  Speaker 1: three and had probably already bottomed out at that point
• 13:15
  Speaker 1: in time, and so it was probably over anyway. But
• 13:18
  Speaker 1: they put this deposit insurance in well, that effectively negated
• 13:23
  Speaker 1: the role that the FED had been created for. Because
• 13:26
  Speaker 1: deposit insurance, you know, that was going to stop runs.
• 13:29
  Speaker 1: People had confidence. Now it was a bigger blanket. So
• 13:33
  Speaker 1: the FED had to reinvent itself effectively after that, which
• 13:36
  Speaker 1: it did, and it reinvented itself, you know. I think
• 13:40
  Speaker 1: the key point was when William mackenzie Martin defined the
• 13:44
  Speaker 1: Fed's job as taking the punch bowl away before the
• 13:48
  Speaker 1: party overheats. And this was in the nineteen fifties, and
• 13:52
  Speaker 1: it was like, the idea was, well, if the economy
• 13:55
  Speaker 1: starts overheating, we'll prevent us from going into another depression
• 14:00
  Speaker 1: because we'll start raising interest rates, and we'll monitor this well.
• 14:05
  Speaker 1: You know, they then create the opposite problem when lbj's spending,
• 14:11
  Speaker 1: you know, the guns and butter spending of the nineteen sixties,
• 14:14
  Speaker 1: starts to click up in the late sixties and we
• 14:17
  Speaker 1: start running chronic deficits. What happens, the FED prints the
• 14:21
  Speaker 1: money to monetize those deficits, and that pushes us into
• 14:25
  Speaker 1: the inflationary nineteen seventies. And so then later in the
• 14:29
  Speaker 1: decade we get this Federal Reserve, new Federal Reserve Act,
• 14:33
  Speaker 1: which gives them the mandate of controlling both watching inflation
• 14:39
  Speaker 1: and watching unemployment. And so it's like this evolved so
• 14:44
  Speaker 1: gradually under the surface over time that everybody just accepts
• 14:49
  Speaker 1: the fact that we have them playing this enormous role
• 14:52
  Speaker 1: in manipulating the economy in spite of, you know, the
• 14:56
  Speaker 1: inherent theoretical fallacies of the idea to begin with, and
• 15:01
  Speaker 1: then on top of that, this long track record of
• 15:04
  Speaker 1: disastrous results that has come from this institution.
• 15:07
  Speaker 2: So I couldn't agree with you more. I couldn't have
• 15:10
  Speaker 2: said it better myself. It's so true that this experiment
• 15:17
  Speaker 2: it's going to come to a bad end. One of
• 15:20
  Speaker 2: the other things that the Federal Reserve took on since
• 15:24
  Speaker 2: the Great Financial Collapse was basically that they're not going
• 15:29
  Speaker 2: to let the stock market go down either, and they've
• 15:31
  Speaker 2: been very effective at that. So I guess if you're
• 15:35
  Speaker 2: holding a lot of stocks a lot of assets, you're
• 15:38
  Speaker 2: a beneficiary of asset inflation. You think the Fed's doing
• 15:41
  Speaker 2: a great job. But when you go to buy groceries
• 15:45
  Speaker 2: or buy a house, you don't think so much. Todd,
• 15:49
  Speaker 2: it's great having you on. You find him at toddsheetswriter
• 15:53
  Speaker 2: dot com. Links in the show notes to this interview
• 15:57
  Speaker 2: on Financial Survival Network dot com. We've now switched totally
• 16:01
  Speaker 2: to substack. I'll be sending out a little message explaining
• 16:05
  Speaker 2: the decision to give up the traditional website. Todd really
• 16:10
  Speaker 2: appreciate you coming on. We'll talk to you again soon.
• 16:12
  Speaker 1: I'm delightful to be with you.
• 16:13
  Speaker 3: Thanks Kerry, thanks for listening to Carrie Letz's Financial Survival Network.
• 16:18
  Speaker 3: Your solution to today's trying times. For the latest, go
• 16:22
  Speaker 3: to Financial Survivalnetwork dot com. Financial Survival Network now more
• 16:28
  Speaker 3: than ever