phicapital on Nostr: OPINION PIECE: Government Fiscal Policy of Deficit Spending (racking up the National ...

OPINION PIECE: Government Fiscal Policy of Deficit Spending (racking up the National Debt and the Interest line item on that Debt paid out via Bond Yields) coupled with a decade of Fed ZIRP (allowing for excess rehypothecation in the Banking System) forced the Fed to raise Interest Rates over the last year in response to Price Inflation. This Price Inflation was caused by a combination of this Excess Liquidity, creating high Consumer Demand, inflamed by increasing Energy Costs as well as Supply Side constraints due to lack of Investments, Policy, Covid measures, etc.

This higher rate environment is now causing a consolidation of Assets via bankruptcies and failures at the micro level (home/land/business owners, commercial RE, regional banks, etc.) and ultimately absorbed into the balance sheets of larger asset managers or even the Government via subsidies, with the risks passed onto the public of course. At this current rate of asset consolidation, the Fed will own everything on its balance sheet, and you will own nothing. You'll be happy since your Debt was written off and you might even be getting UBI. Sound familiar? Either that or the US defaults and gets bailed out by the IMF like every other failed state, which could be part of a global consolidation effort.

Considering the current round of failures, the effect on unemployment and wages, and lower recent Inflation prints, you'd think this would be a time for the Fed to pause or start cutting rates. Historically, the Fed starts cutting rates about a year before a recession. However, OPEC+ came in with the wild card, announcing production cuts starting in May and lasting until at least EOY, cutting supply to almost 4% of global demand, indicating energy prices could rise and increase inflationary pressures. This means the Fed would have to continue raising rates, even beyond the 5%. As Powell has stated time and time again, his priority is to get back to 2% Inflation. And he'd have to do it sooner than later if he doesn't want high Inflation expectations to become entrenched in society, pointing to a Hard Landing.

If you were in Jerome Powell's shoes right now, what would you do? Increase rates to continue combating Inflation created by irresponsible fiscal policy, supply chain, and geopolitical factors? Or reduce rates to prevent more ground level failures but at the risk of run away Inflation? Comment your thoughts below.