On Tuesday, Sweden's central bank, Riksbank, shocked markets by raising a full 100 basis points or one percent to combat 30 year high inflation, the biggest hike by the bank since November 1992, when it also raised rates by a full percent. Consensus expected a .75% increase. The rate now stands at 1.75% and their goal is to bring it to 2.53% by the third quarter in 2023. Some are saying the bank will be more aggressive and push for a peak of 3.5%. Swedish home prices have already fallen 18% since peaking earlier this year. We know where this is going, don't we?
Then Wednesday came and it was the Federal Reserve's turn when, immediately after their monthly FOMC meeting ended, announced a 75 basis point increase in the federal funds rate. I stated in a previous article that a 3/4 percent increase would add $300 Billion in interest payments to the federal debt. It's now safe to say that, combining the rate increases so far this year, American taxpayers are now on the hook for an additional trillion dollars in interest payments. If the U.S. government has been running deficit budgets for decades now, how are they going to find an extra trillion? Not only that, Fed Chair Powell has stated that more interest rate hikes are on the way which means an even bigger deficit. It just doesn't make any sense.
Gold seesawed before and after the Fed's announcement...
Last week, it was Canada's (1%) and the E.U. central bank that hiked along with a few others. The European Central Bank had its first rate hike in 11 years back in July and on September 8, hiked by the most on record with 75 basis points. After being at zero or negative territory for more than a decade, the E.U. now has a rate of 0.75%.
This morning we got word that the Bank of England has hiked its rates by 50 basis points. This is a the second 50 basis point hike in a row and is considered 'historic'. They've also announced quantitative tightening to the tune of 92 billion pounds in the first year from 850 billion to 758 billion pounds.
The Japanese central bank has intervened in Forex markets by selling U.S. treasuries in exchange for Yen to try propping up their failing currency. How much in treasuries they sold is being kept a secret, apparently. The Japanese central bank is one of only a handful (Brazil, China, Russia) to not raise rates which remains at a mind boggling minus 0.1%. This Forex intervention is Japan's first since 1998. It was not that long ago, the Yen enjoyed parity with the dollar. The Yen now stands at about 143 yen to buy one dollar. The last few months has been tough on the Yen, after plummeting by almost a quarter since the start of the year. While the Yen strengthened by 1% after the intervention, how long before they have to intervene again? What happens when they have no more treasury bills to sell to prop up their Yen?
The Swiss too have been busy, raising by 75 basis points to finally pull them out of negative rate territory to 0.5%. They too, are considering selling foreign currency to shore up the Swiss Franc with SNB chair Jordan hinting at interim rate hikes if needed. What that means is, get ready for surprise rate hikes in between meetings.
Norway also raises its rate by 50 basis points to 2.25%. The bank's governor, Bache, has warned to expect another 25 basis point hike in November. Hong Kong raised by 75 bps to 3.25%. Other banks that have raised rates include Taiwan, Philippines and Indonesia. It should be obvious where all of this is going.
It's time to brace for a massive slowdown around the world which means massive layoffs. If the employment rate skyrockets, it will deplete unemployment funds and decrease income tax revenues. It was reported earlier this week that California will experience an 12% shortfall in tax revenues. I have a feeling that number will creep up much higher as we head into a full-blown recession / depression and tax revenue shortfalls will be felt around the world. Is this all by design? What do you think the central banks will do then?
"Mortimer, turn on the printing machines"!
Please let me know what you think of all this in the comments section below.
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Getting ready for the coming food shortage.
The food shortage that doesn't have to happen!
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