Saturday, November 16, 2019

Pot Calls Kettle Black: Fed Lectures Congress Over Ballooning Deficits

Did I hear correctly, or have I truly gone mad? Did Jerome Powell, the head of the Federal Reserve actually lecture Congress over their ballooning debt levels and out of control spending?

After reconfirming and double checking, no, my sanity is still intact and yes, the Federal Reserve, who know nothing else, other than printing fiat funny money into oblivion, is actually lecturing Congress on the path that the United States is heading down, one which now sees the National Debt level at a stunning $24 Trillion and growing with each passing second.


The irony is just too sweet, as the Federal Reserve are the kings of debt and the facilitators of this out of control debt, highlighted by their recent actions in the overnight lending repo markets, of which they have been vigorous plugging holes, throwing ungodly amounts of money at the problem and ballooning their own balance sheets in the process.



Regardless of this "pot calling the kettle black" scenario, the Federal Reserve is not incorrect in their assessment, as government deficits have indeed been exploding higher as of lately, accelerating at an alarming pace.

In fact, the latest Treasury Department Report, which was just released on October 31st, highlights just how much the deficit has been growing, with last month's shortfall being 34% higher than the same time period in 2018, hitting $134.5 billion in just one month!

Projections for the 2020 deficit don't get any better, with estimates indicating that the deficit will surpass the $1 Trillion mark, a number that was only reached previously in the years following the 2008 crisis.

This is happening in the "good" times and this is exactly why Federal Reserve Chairman Powell is ringing the alarm bells over Congress's head, as he knows that the Fed will not be able to bail out the markets like they did during the 2008 crisis. 

Perhaps, as the Fed's very own words are indicating, they know that they are out of bullets this time around, with interest rates at already historically low levels.

Below are just a few of the alarming statements that Federal Reserve Chairman Powell told Congress during Wednesdays meeting;

“The federal budget is on an unsustainable path, with high and rising debt,”

“Over time, this outlook could restrain fiscal policy makers’ willingness or ability to support economic activity during a downturn.”

In addition to this "talk down", the Fed Chairman also reiterated his previous position, that the Fed has no intentions of lowering interest rates anytime soon, unless the economy takes a nose dive lower in the coming months.

The broader markets appear to believe this recent hawkish stance that the Fed has adopted, with the odds plummeting for a rate cut at the next Fed meeting.

As it stands today, the markets believe that there is a 96.3% chance that rates will not be changed at the next months Fed meeting.

This is likely to be the case and I would say that these odds are absolutely correct, as the damage to the Feds reputation would be severe indeed if they continued to lower rates after all this hawkish talk of lately and especially after they just wagged their fingers at Congress for their reckless spending.

Still, 2020 is an entirely different ball game and I expect continued intervention in the markets on behalf of the Federal Reserve, continued excessive spending and record deficits from Congress and extreme volatility as we head into the 2020 elections, the latter of which I believe are going to be incredibly violent and nasty, leading to even further division within the United States.

All of this is a recipe for higher gold and silver prices, who as of the start of November have been suffering under renewed attacks against their prices and are thus trading at a discount to what I believe to be much higher future prices.

Until then, keep stacking and ignore the noise.

- As first seen on the Sprott Money Blog