Despite Fed’s Efforts, Inflation is Still Out of Control

By Victor Sperandeo with the Curmudgeon


To a very large degree, the Fed controls the amount of money and credit in the U.S. financial system. The U.S. central bank determines the cost of credit via the Fed Funds rate, the money supply through open-market operations, creates excess bank reserves by buying or borrowing Treasury bills from commercial banks, and uses the Reverse Repo facility (where the Fed borrows money from its primary dealers) to control short term liquidity. 

Their short-term manipulation of the credit markets is all about central planning and is the opposite of “free markets.”

“Philosopher Kings” in Control:

In recent years, U.S. government agencies (like the BLS) distort the economic numbers they release to try to maneuver the people to act the way the “Philosopher Kings” at the Fed want them to do. That’s done to accomplish their goals, which are not publicly disclosed (which is why we continue to assert the Powell led Fed has a hidden agenda.

Their main goal is to keep the established political system going, and to re-elect, or change the parties in power to what the wealthiest entities want.

If making money is your goal, you should never believe the Fed’s words as they want an outcome that likely won’t help the average person. Follow what they actually do, rather than what they say they might do.

Fed’s Balance Sheet and Quantitative Tightening (QT):

Let’s look at one example to prove my point – the Fed’s Balance Sheet.

One of the main tools of controlling the financial system and the economy is the amount of money on the Fed’s Balance Sheet.

The Fed’s balance sheet is important for monetary policy because it influences longer-term interest rates that the Fed Funds rate doesn’t directly control. When the Fed wants to stimulate the economy, they buy more assets and grow their portfolio. When they want to restrict growth, they let assets roll off and shrink their balance sheet.

The Fed began Quantitative Tightening (QT) in June 2022 to reduce its bloated balance sheet which had soared since the great financial crisis starting in September 2008.  The QT process was to NOT reinvest billions of dollars of maturing fixed income securities each month, so they would “roll off” the Fed’s balance sheet.  Since the June 2022 QT start, the Fed has reduced its total net assets from $9 trillion to $7.539 trillion as of 3/7/24.  That amounts to $1.461 trillion or 16.233%. 

The ballooning of the Fed’s balance sheet since the great recession and its subsequent decrease under QT is shown in this graph:

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Source: U.S. Federal Reserve Bank

Yet as the Curmudgeon noted in an earlier post today, there’s a tremendous amount of liquidity in the global financial system, with barrel full of excess commercial bank reserves.  That reality is despite the shrinking of the Fed’s balance sheet via QT! 

One would’ve expected the exact opposite! We explained that dichotomy in this post: Clandestine Role of the Fed in Increasing Liquidity. Also see: Curmudgeon: Interest Rates Rise; Fed Balance Sheet Shrinks, Global Liquidity Flatlines

The Fed and U.S. Government Agencies (BLS, BEA, etc.):

Here are a few recent Sperandeo/Curmudgeon blog posts describing the collusion between the Fed and the BLS regarding jobs numbers and the CPI:

Inflation is Still Out of Control:

Under the Biden administration, inflation, as measured by the CPI, has been 5.68% annually at a compounded rate.  Recall, the Fed’s annual inflation rate target is 2%, based on the PCE (Personal Consumption Expenditure index), which it believes is more accurate than the CPI.

Anyone who thinks that inflation is going to be under control should look at President Biden’s recently released U.S. budget proposal of $7.3 trillion for fiscal year 2025 which begins on Oct. 1st. The typical 5.4% budget increase is now proposed to be +13.3%!

Victor’s Conclusions:

1. Clearly, the Fed’s agenda is to keep those it wants in political power. Businesses which are failing daily are just collateral damage resulting from the Fed’s monetary policy. As the Curmudgeon noted in the earlier referenced post, this year’s global tally of corporate defaults stands at 29, which is the highest year-to-date count since the 36 recorded during the same period in 2009.

2. U.S. government spending continues to increase at alarming rates with the budget deficits defying gravity. That has resulted in total U.S. federal debt increasing by $1 trillion every 90 days!

-->It appears to me that U.S. government leaders are planning to destroy the U.S. Constitutional Republic as we know it.  What will be its replacement is unknown?

End Quote:

Russian tyrant Vladimir Lenin, the leader of the Bolshevik Revolution in Russia, is often quoted as saying that inflation is a way to crush the bourgeoisie and destroy the capitalist system. However, there is no clear evidence that he actually said this exact phrase. Some sources attribute a similar quote to him, but others suggest that it was a paraphrase or a misattribution. In any event, the quote reflects Lenin's view that inflation can be used as a political weapon to confiscate the wealth of the citizens.

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Vladimir Lenin was a Russian revolutionary, politician, and political theorist. He served as the first and founding head of government of Soviet Russia from 1917 until his death in 1924, and of the Soviet Union from 1922 to 1924.


Be well, good luck, success and till next time……………………………….

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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