Terror of the Fed
The Fed reacts much more quickly to wage inflation
than consumer price inflation.
But it never reacts to asset price inflation.
One of the Fed’s jobs, in addition to (1.) inflating asset prices and (2.) keeping the biggest banks from imploding, is to make sure (3.) US employers have access to cheap labor so that they can (4.) maximize their profits and at the same time (5.) remain competitive with cheap-labor countries.
DYI: (1.) Inflate asset prices; that is especially true for residential real estate pricing out many Americans or making a home purchase a gargantuan financial burden. Before the Fed arrived on the scene in 1913 purchasing/building a home was more along the line of one or less yearly income for a starter home and two years earnings if you decided to go upscale. Back then having a mortgage was seen as a person of low moral character. Mortgages were rapidly paid off not to have the disdain of friends and relatives.
Today the median income is (St. Louis Fed) $56,516 and the median priced home is (St. Louis Fed) $305,400 or 5.4 times income for a basic house. A far cry from 1.0 or 1.5 times income. All of this endures you and your family to the bankers earning interest out of debt the bank created by a click of mouse on the computer. We should all be bankers
(2.) Make no mistake the Fed's work primarily for the big New York Banks and when they get into trouble bails them out with ultra low interest rates either through pushing down market rates or the bank going directly to the Fed's.
(3.) (4.) (5.) You are owned by the State (U.S. Government) and are here to do the bidding of the elites and their enforcers the political class. Consumer price inflation greater than wage inflation driving down wages to ensure employers cheap labor in order to maximize profits and remain competitive with cheap-labor countries. Since 1971 when President Richard Nixon ended the remains of the gold standard wages on balance have never exceeded (except short term periods) consumer price levels. Hence wages declined; the Fed's REAL MANDATE has been highly successful.
Over the past decades, the Fed has been successful at it. But there have been some hiccups, and when they occur, the Fed raises rates, and sometimes sharply, to bring the system back in line. And now there’s a hiccup, and it’s getting bigger.
DYI: Bring the system back into line. To where the average citizens purchasing power continues to decline - lowering of wages - slowly enough so that the political class can blame this robbery on other forces exempting themselves from public scrutiny or outright examination delivered by citizens with pitchforks. Politicians can blame consumer price changes on weather, speculators(an old favorite), OPEC etc. and get away with it over the long term.
Since late 2014, year-over-year average hourly wage increases have been significantly higher than year-over-year consumer price inflation. December 2015, the Fed raised rates for the first time in this cycle. Last December, it raised rates for a second time. And it penciled three rate increases into the 2017 calendar, which the Fed calls “gradual” – small increases spaced well apart.
The faster wages increase, the faster the Fed is going to raise rates. Even the idea of reversing QE and shrinking the Fed’s balance sheet is now cropping up among Fed doves. If you want to know when the Fed gets serious about tightening, watch wage inflation.
DYI: So far I see nothing stopping wage increases due to market forces what will occur the Fed's will in earnest begin rate hikes bringing on a recession to dampen incomes. Stock/bond/real estate markets will take a back seat to the Fed's first priority of maximizing profits through wage erosion. If stocks have to take a 50% hit along the way to bring back wage erosion; then so be it. Of course this change will be well telegraphed to the elites giving them time to reduce stock holdings dumping off as much as possible to unaware citizens either directly or through mutual funds held by the public(401k's IRA's etc.). If the big banks get into trouble the Fed's will bail them out everyone wins except average Joe and Jane Doe who takes it up the you know where!
DYI's model portfolio is positioned for a decline in the U.S. stock market and take advantage of increasing rates. When the recession does arrive there will be a flight to quality long term T-bonds and gold. DYI's portfolio has 23% in Vanguard's Precious Metals and Mining Fund. So hold to your hats it is going to get very windy in the financial markets.
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