Let's be honest, if a current Fed Funds rate of 5.25% is killing the economy, then something is seriously wrong in America. I can understand a 7.25% Fed Funds rate having an impact, but not 5.25%.
For you young whippersnappers out there, I am old enough to remember a rip roaring bull market with a fed funds rate around 6.50%.
Over at the Chicago Board of Trade, a little game is played with the Fed Funds future that eventually affects the outcome of upcoming FOMC meetings. Traders manipulate the interest rate on the Fed Fund futures in hopes of affecting the Fed Funds rate before an upcoming FOMC meeting. The Fed Funds futures are also known as market rates.
When market rates (the fed funds futures) are below the Fed Funds rate, the fed normally lowers the Fed Funds to get in line with market rates. Currently, the Fed Funds rate is 1.18% above market rates. This means the Fed has room to cut rates by a full 1% in the upcoming months.
So, regardless of what inflation, the dollar, gold or energy is doing at the moment, the fed will lower the key Fed Funds rate next week.
Currently, the highest probability is a .50 basis point (1/2 point) cut in September, followed by the second to highest probability being a .25 basis point cut (1/4 point).
(Unfortunately) Right or Wrong has nothing to do with it
The inflation problems currently facing consumers are huge. Prices of everything we use on a daily basis have skyrocketed. This massive inflation has been brought on by demand for energy and raw materials in Asia. We, the American people are paying higher prices for the industrial revolution taking place in China and India.
For those of you who don't believe an industrial revolution is taking place in China, all you have to do is watch the shares of Chinese stocks and ETF's that are bouncing around like super-balls.
FXI- iShares FTSE/Xinhua China 25
PTR- Petro China
ZNH- China Southern Airlines
LFC- China Life Insurance
CHL- China Mobile
BIDU- Baidu.com
ACH- Aluminum Corp. of China
CHU- China Unicom
PGJ: PS Golden Dragon China Fund
This super-ball movement reminds me of the internet stocks in 1999-2000. The difference of course is the growth in China is not an illusion, the internet stocks were.
U.S. Economy can no longer handle higher rates
That's right! Our economy can no longer handle higher rates. Do you want to guess why? I'll save you some time.
The headline read;
1) The US economy lost 4,000 jobs in August. On the surface you can say, "That’s not so bad". Oh, but the devil is in the details.
According to Paul Craig Roberts, former Assistant Secretary of the Treasury in the Reagan Administration;
a) Jobs in goods-producing industries declined by 64,000.
b) The service sector (jobs for waitresses and bartenders) grew by 24,000 jobs.
c) The government sector lost 28,000 jobs.
2) "The "real" job growth since the year 2000 has been in the service sector. You know, jobs like waiters, waitresses, bartenders, healthcare service workers."
"The manufacturing jobs in this nation are leaving, or are already gone. The unemployment rate is not accurate since over 300,000 workers who were unable to find jobs are not listed as unemployed after a certain period of time. They are simply listed as disgruntled workers and are no longer listed as part of the active work force."
3) "When US company’s offshore their production, they turn US brand names into imports, which are highly detrimental for the US economy. One consequence is that foreign labor is substituted for US labor, resulting in a shriveling of career opportunities and income growth in the US."
a) In addition, "Franchises and chains have curtailed opportunities for independent family businesses, and the US government’s open borders policy denies unskilled jobs to the displaced members of the middle class."
4) "The US now has a trade deficit with every part of the world."
a) The US had a trade deficit totaling $838,271,000,000; It means that Americans are consuming $800 billion more than they are producing.
-Europe was $142,538,000,000
-Canada was $75,085,000,000
-Latin America was $112,579,000,000 (of which $67,303,000,000 was with Mexico).
Asia and Pacific was $409,765,000,000 (of which $233,087,000,000 was with China and $90,966,000,000 was with Japan).
-Middle East was $36,112,000,000
