What The Fed plans to do by March 2022 is simply TURN THE TAP OFF and stop filling up the bathtub so the M2 money supply stops growing.Here is the official data to show you how the M2 money supply is still increasing now (16 Jan 2022) despite all the “tapering talk” since November 2021:
Up, up and away.The M2 money supply is still increasing because the bathtub taps are still ON! It is i mportant to note that the Money Supply itself is not tapering down but the rate at which The Fed is increasing the Money Supply is being tapered or reduced (i.e.they are not buying as many bonds every month but they’re still buying)! Why is it important to keep watching the M2 money supply? Because the higher it goes the more “liquidity” is floating around the system and the more your purchasing power gets diluted .
In other words, the higher the money supply goes the lower your purchasing power goes so you start having to pay more for everything.
Car prices go up, Food prices go up, Everything goes up and they call it “inflation”.In reality, this inflation is caused by leaving the bathtub tap on for too long and overfilling the bathtub — it dilutes the money you have in savings and makes it worth less.
Not only does Mr Powell and The Fed accomplish this filling up of the bathtub by buying tens of billions of bonds per month with their own vapor-ware money but they also fiddle the overnight reverse repos.
Here is the official FRED economic data showing how The Fed is also filling up the bathtub using Reverse Repos.
As you can see this dipped a little bit causing the recent mild market downturn but is now headed up again (filling the bathtub up more — increasing liquidity even further).You will find most of the market Green Days and Red Days are the direct result of The Fed fiddling with the M2 money supply behind the scenes (and algorithms then reacting to this).As the money supply increases stock prices keep going up.As the bathtub gets full stocks go higher and as the bathtub gets emptied (interest rates increase) stocks go lower as money shifts to bonds where yields go up.
The Fed can also fill up the bathtub by fiddling the Reverse Repos and have done this A LOT! The combination of the rate The Fed buys bonds along with their Reverse Repo fiddling is what controls the flow of water into the bathtub (and resulting Money Supply).
They use a combination of a number of “economic tools” to adjust the rate the water flows into the bathtub to adjust the overall M2 money supply.The bottom line is they are pumping stimulus into a weak economy by pumping more water (i.e.
liquidity) into the bathtub.As more money becomes available more loans are given out and more spending takes place.
The problem is the bathtub might get too full and start to overflow — and that is when you will see the markets becoming unstable due to too much liquidity in the system.Too much liquidity in the system causes people and companies to start spending inefficiently and foolishly making the overall markets weaker.
The net effect of too much water in the bathtub is bond yields will start to go way down and eventually when the yields go to ZERO nobody will buy the bonds anymore! The concept of a loan becomes meaningless at zero percent interest.So think of the water in the bathtub overflowing being similar to the US government no longer being able to sell any treasury bonds to pay its huge and growing debt.The result is of course US financial system collapse when the bathtub overflows and interest rates get stuck at zero.Too much deflation means the US government defaults on its debt.
How does The Fed let water OUT of the bathtub and open the drains (or make the bathtub itself bigger)? That economic tool is called Raising Interest Rates.Raising interest rates is like opening the drain in the bathtub and letting some water out.They plan to do this very gradually by opening the drain just a little bit (i.e.
0.25% rate hike in March) at a time starting in March 2022 or later.If the money supply goes too high the markets will become unstable because interest rates will go too low to allow The Fed to sell Treasury bonds — so the fed will keep opening up the bathtub drain more and more to ensure they can still find buyers for their Treasury bonds to finance their spiralling debt burden.Once the tapering (reduced rate of bond buying) is complete by March 2022 The Fed will no longer be filling up the bathtub and they will start to open the drain to very slowly let some of the water out to get the water levels back to a normal level where the tub is partially full.A partially filled tub is ideal for taking a bath (i.e.
sustained stable economic growth)! Higher interest rates and higher inflation also help The Fed to make payments on the ever increasing US debt that is not sustainable forever without much higher inflation.
If interest rates are raised too high too quickly (i.e.the drain is OPENED WIDE)…then all the water will rush out of the tub and nobody can take a bath in an empty bathtub! (i.e.nobody can buy or sell because there is no money left in the system to conduct any transactions — and The Fed can’t sell treasury bonds anymore to pay it’s debt)!
You can’t take a bath when there is NO WATER! (i.e.raising interest rates too high will drain the tub).And so there are two extremes to this bathtub analogy.If you fill the tub too full too quickly the water will overflow (i.e.bond yields go to zero and the US can not sell any Treasury Bonds to pay off its huge debt).
If you empty the tub too quickly (i.e.raise interest rates too fast) all the water drains out of it and the global system freezes and collapses because the US government can no longer sell Treasuries to pay it’s debt! Now you can see why The Fed is doing a balancing act.They are trying to keep the bathtub at just the right level to enjoy a bath (stable markets).They added some extra water when the pandemic hit to help stimulate the economy and now the economy is recovering they are turning off the taps and opening the drains a bit.Not too full, not too empty, but just right as Goldilocks would say.Bond buying and Reverse Repos can be used to fill the tub up more.Interest rates can be used to drain the tub.
The tub is a bit too full right now due to the pandemic the world just went through so they want to gradually and slowly let some water out.
Of course it would be INSANE to have The Fed buy bonds and raise interest rates at the SAME TIME so if you see that happenning the end of the world is near.Who tries to fill up the bathtub with the drain open other than crazy people? This is why interest rates won’t be raised until March 2022 when the bond buying stops (i.e.tap is turned off before the drain is opened).
The markets have already priced in the “tapering” and expected gradual interest rate rises.If The Fed raises interest rates too quickly the market will respond by crashing — especially given it’s so highly leveraged with over 1 Trillion in market leverage.The Fed knows this — the slightest trigger will cause a market collapse.
The hope is that a very gradual series of 0.25% interest rate rises that are announced well in advance will allow the water in the tub to be ever so slowly drained down to levels where the water should be while preventing any severe crashes.
The two extreme scenarios here to watch for are as follows:
Overflowing the bathtub means continued stimulus, more bond buying by The Fed, possibly stock buying by The Fed as well, more stimulus checks and keeping interest rates really low (i.e.keep the drain closed).This may be a response to an unforseen market crash caused by War or other Black Swan events.This is the hyper-inflation scenario that the Weimar Republic and Venezuela went through.
This will require further unknown major shocks like China invading Taiwan, Russia invading Ukraine, a large Asteroid strike, etc.Right now this scenario is unlikely and not the course The Fed is on despite what is printed in the globally coordinated fake news.
Does anyone really think a nuclear war with Russia over the Ukraine is in everyone’s best interest? It won’t happen because China has vowed to back Russia and the West is in disarray from the pandemic.
Draining the bathtub means stopping the stimulus, stopping the bond buying, no more stimulus checks and jacking up interest rates (i.e.open the drain).
This is the scenario the world is currently moving towards because they must drain some water out of the bathtub.If this is done very slowly it is possible the markets can remain stable without crashing and the economies of the world continue.However, is this is done too quickly then the global economic system will freeze up due to lack of liquidity.A Depression will result if this is not perfectly orchestrated at exactly the correct slow clearly communicated in advance rate hikes.
From The Visual Capitalist: An example of severe DEFLATION — Depression.
Right now as of 16 January 2022 the world is clearly trying to Drain The Bathtub! The world’s central banks are turning the taps down and eventually off within a few months and then they will open the drains to let some of the very high water levels out (i.e.raise interest rates from March 2022).The problem is they may let too much water out (i.e.raise interest rates too much) and when the liquidity in the system drops too low the market will crash badly and may be hard to restart given its fragility.The Fed is walking a tightrope here.There is a 12 to 18 month lag from raising interest rates to when it impacts the economy so historically The Fed has always raised rates too fast and too quickly, not properly accounting for this lag effect.
If the market crashes because The Fed miscalculates and let’s too much water out of the bathtub too quickly then there is only one thing they can do to correct the problem: CLOSE THE DRAIN and TURN ON THE TAPS to start refilling the bathtub as fast as possible! Those holding hard tangible assets that are outside the banking system will be the winners here.
Farmland, Physical Gold, etc.Crypto’s are not a good bet if they have to reboot the global system from scratch because they will almost certainly make cryptos illegal in this extreme scenario.If China is running on it’s e-Yuan digital currency backed by gold it will also survive well as will its partner Russia who also has huge gold reserves and vast natural resources.China is in a very strong position given it’s ability to manufacture everything it needs itself.In this scenario China/Russia quickly becomes the rulers of the world and all the Western nations will be begging at their doorsteps to be thrown a few morsels to help them survive.Even today Russia has energy that Europe needs and the EU is at Russia’s mercy to keep itself warm this winter.
Poor planning by EU’s overly bureaucratic and ineffective politicians is a root cause here.
If the market crashes because The Fed miscalculates and adds too much water into the bathtub (too much bond buying, stock buying, stimulus checks) with the drains closed and overfills the tub, then we end up with super inflation or even hyper inflation of the US Dollar and everyone’s pensions and savings in the Western system evaporates.The problem with this scenario is everyone is very aware of what happenned in Weimar Germany as well as Venezuela.If inflation starts to soar way above 20% alarm bells of all kinds will go off and the Democrats will be vigorously voted out of power in the coming mid-term elections.The US government currently in power can’t afford to let this happen.This scenario will be very hard to architect when students of history see it coming well in advance.Early signs would include people not being able to pay their rent or afford the food to feed their children and the Democrats just won’t let this happen with elections coming up.
If this hyper-inflation scenario did happen then once again those holding hard assets like Farmland and Physical Gold would be the winners.Those holding cash would be the losers here because their cash would get inflated away.I believe this scenario is extremely unlikely given the US mid-term elections and the fact most people are acutely aware of what happenned in Weimar Germany, Venezuela and Zimbabwe with hyper-inflation.It would be recognised and stopped before it happened again, especially with the elections coming.Something tells me the job market will be booming going into the mid-term elections in the USA.Magical how that always seems to happen!
Given the US mid-term elections coming, the current variant being very mild and expected to be over soon, and the global economies poised to continue their rapid recovery — I believe the future will play out as follows:
Between now and March 2022 The Fed’s bond buying will stop and this will be followed by some slow, gradual, 0.25% interest rate rises designed to slowly let some of the water out of the bathtub in a controlled manner.
Inflation will start trending down making the voters very happy with the current administration coming up to the mid-term elections.The Fed will be declared correct in that inflation was somewhat transitory even though it lasted longer than expected and remains a bit elevated.
Once the Democrats make surprising wins in the mid-term elections due to an economy that is picking up, jobs galore and “ similar techniques ” they used in the last elections — then Democrat driven Fed will become wreckless and make some severe monetary policy mistakes with the mid-term elections behind it.Inflation will still be too high post elections due to the 12 to 24 month lag effect after changing the M2 money supply.This is when The Fed will then make the grave mistake of raising interest rates too much and too quickly effectively pulling the drain plug out of the bathtub while it pumps more stimulus with many new gravy-train handout programs.The water will drain out too fast while the taps are turned on full blast.Financial system chaos will occur.
Only the insane try to fill up the bathtub with the drains open.
This is where history not only rhymes, but is repeats….The Great Depression of 2023 through 2027 is underway after stock markets collapse down -90%.The world goes into turmoil and realises it has no option but to undergo a Great Reset of some kind.Civil War and other wars are highly likely during this period.Most Depressions are associated with major global wars.For those who are students of history it is interesting to note that nobody is really quite sure exactly what caused the 1929 stock market crash and Great Depression.
There are many theories and much debate remains.My theory is they tried to fill up the bathtub after they pulled out the drain plug and that insane behavior is what causes the financial system to become chaotic, unstable and crash.Here comes Deja Vu right after the US mid-term elections….
From The Visual Capitalist…
This is how The Great Reset will cause you to “own nothing”.The “Be Happy” part remains unclear? Best investments after a major market crash during times of Depression?
Real Estate that can produce a regular income (rent a room out is another idea to generate some cash) Precious Metals like Physical Gold hold their value Hold Cash until the big crash happens to preserve your wealth.Swiss Francs cash is always safer than most other cash.If you invest in stocks, keep tight stop losses on everything.
Don’t count on Bonds working this time if the US Dollar loses it’s reserve currency status! Beware stocks and bonds both! Who wants bonds from a country who has lost it’s reserve currency status and is collapsing? Don’t bet on crypto currency as it will likely be made illegal or restricted as China has done.Stick to basic hard assets: Physical gold, Real Estate, Land.I am not a Financial Advisor and everything I write is for entertainment and educational purposes only.
Think hard and prepare yourself mentally, physically and spiritually — the bathtub may be getting drained right after the mid-term elections! There are some who won’t let the next Presidential elections take place.
So the timing of the Great Reset is almost certainly after the mid-term elections and before the next Presidential election.You have a small time left to prepare so use it wisely!
The Great Reset may be here sooner than you expect! Prepare for the tub to get drained! You can’t take a bath when there is no water in the tub!.
