The one chart you need to see this weekend is a chart of real business investment that shows that the more the Fed raises rates the more it encourages businesses to spend on plant and equipment. That’s exactly the opposite of what the Fed tells us. Rising rates are supposed to cool the economy. Instead, they cause it to heat up.
Increased business spending on plant and equipment may boost the economy for the short run, but if demand isn’t rising as well, the capital spending boom only leads to overcapacity and a subsequent bust. Furthermore, in an environment of falling liquidity, such a boom diverts funds away that from what’s needed to absorb the ever increasing supply of financial assets — stocks and bonds.