The Fed Is Not Dealing From A Position of Strength

When the Fed eventually cuts its Fed Funds Rate (FFR), it will not be because CPI has been tamed and that the U.S. Economy is strong. If the U.S. Economy were strong, the Fed would not touch its FFR.

The U.S. Economy is weak:

• Treasury Debt grows faster than Real GDP. Were it not for the Fed’s ability to print at will, the United States would be rated D (“D” for default).

• Interest Expense on the Debt is the 3rd largest fiscal expense item behind Social Security and Medicare. Interest Expense is 25% of Federal Tax receipts.

• The U.S. runs fiscal deficits at 45% of Federal Tax receipts. That is unsustainable.

• 37% of the Civilian population does not produce (June labor participation rate was 62.6%).

• The absolute price level (CPI) is too high. That $1.50 candy bar that cost my grandmother $0.01 costs $1.50 today because our elected and unelected officials thought it was a good idea to grow M1 by 150x since WWII. Dollar holders are like angel investors who put money in without any terms, only to be crammed down in subsequent rounds by venture investors who negotiated favorable terms.

• China was correct to short the Dollar and to buy Gold over the past decade.

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