The Sovereign Investor

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The Fed Is Doomed to Fail

By Jeff D. Opdyke

Let’s establish now the ground rules we will be playing by in today’s dispatch. There’s just one rule: Monetary policyalways serves the rulers, not those who are ruled.

Now, if by chance a monetary policy does bring wealth to those under the thumb of government, that’s just lagniappe as we call it in South Louisiana — a little something extra you weren’t expecting.

Foremost, though, management of state money is purely a function of state needs, citizens be damned.

And so it is that the Federal Reserve now wants American banks to stress test a world in which negative interest rates are the norm.

If you’re savvy and not one to fall victim to status-quo bias, then you should stop reading now (just assume I’m correct with what’s to come below, because I am) and head to the store to buy a safe. You should start paring your paper assets and use that cash to buy physical gold — that you store in the safe.

Our country is a freakin’ disaster, and it saddens me. I look back on my late teens and early 20s (the ‘80s and early ‘90s), when I had such a joyous outlook on the opportunities I saw in front of me. The future seemed boundless.

And then it all fell apart.

Over the last 16 years, in particular, I’ve watched my country derail financially. Monetary, fiscal, political, economic and financial policies in D.C. and across the various statehouses of America have emphasized debt in waging wars and in providing welfare to rich and poor alike. This welfare-warfare economy we’ve created is an inverted pyramid — top-heavy and resting on a base much too small to support the weight the politicians continually pile on top.

At some point, well, you get the picture…

Politicians being what they are — narcissistic and parasitic puppets who will accept anyone’s hand up their skirt for the right price — will never do the job they were hired to do. Namely, they will never manage America’s finances through prudent fiscal policies. Instead, since the Reagan years and Greenspan’s rush to save Wall Street in the wake of the 1987 stock market crash, D.C. has increasingly relied on monetary powers to manage the economy.

Because of that (and because of the debts that D.C. has accumulated), we’re now heading toward negative interest rates — the next great leap in “fingers-crossed” economic policy. The Fed says the stress test is just a hypothetical. Sorry, but there are no hypotheticals at this level.

The Fed is prepping the system. It’s looking for the weak spots and the unintended consequences of negative rates so that it can address them now before the inevitable arrives.

And it will, without question, fail.

Negative interest rates turn the world of borrowing and saving on its head. Borrowers earn money; savers lose money. Consumption replaces saving and investing.

At the most basic level, negative interest rates mean America’s capital stock — its national wealth — erodes, month by month, so that borrowers can buy useless, disposable crap and spend on goods and services with no lasting value.

That doesn’t build an economy. It simply destroys hard-earned wealth. And, thus, it is destined to fail as an economic policy.

The One Safe Haven From the Fed

Politicians, instead, should be taking a meat cleaver to America’s spending, and then using the savings to radically pare federal debt. That — fiscal policy — is the only policy at this point that will repair what monetary policy has proven it cannot. Instead, politicians are demanding that monetary policy pull us out of this quagmire. Sorry to tell you, Puppets, but monetary policy has reached the end of its rope. Janet Yellen and the Federal Reserve will never have the capacity to jump-start an economy anchored by history’s largest accumulation of state-sponsored debt.

The Roman Empire collapsed because of monetary policy that rulers used to expand their rule, damn the ruled.

The American Empire will collapse because of the same — because the rulers don’t give a damn about the ruled. They only care that they preserve the state — and their personal power — through whatever monetary means possible.

There is only one protection: gold. Physical gold.

Gold prices are rising (and they remained relatively firm over the last few years) because the wisdom of the crowd globally realizes that the greatest threat to the world is Western monetary policies that have led us into a dead-end canyon.

Then again, that is the story of rulers throughout history. They act singularly on behalf of the state and themselves, rather than the people. And ultimately it comes back to bite those of us who are ruled.


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