Weekly Bear: Backhoes Show The Fed Is Lying

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.

Your Cash Assets Have Now Fallen $152 Billion

Today, I want to take a few moments and show you both sides of the Fed’s balance sheet – its assets and its liabilities – and exactly what that means for you.

The Fed has shed $154 billion in assets since mid-October 2017, just before the first cuts under the Fed’s bloodletting or balance sheet “normalization” program. It’s now draining $30 billion per month from the banking system, going to $40 billion in July and $50 billion in October, where it is scheduled to remain for the duration of the program. The total drop since the program began suggests that the Fed is sticking to its published schedule. 

Now let’s look at the other side of that balance sheet.

Click here to continue.