Predictions of a Sept Crash Fade (FREEPOM)

Economics, FREEPOM50 Comments

Also see updated information in today's post titled Potential Path Forward on Fed Rate Increases - Sovereign Wealth Funds, Reserve Diversification, and Capital Flows

But Dreams of a 2015 Rate Increase Remain

By JC Collins

With the announcement by the Fed today of no interest rate increase, the hopes and fears of a September crash recede into the background noise from which they came.  What we can expect is the same slow grind of deflation and modest volatility leading into the fall and winter months.  Though nothing the Fed said today would indicate that a rate increase is off the table for 2015, and could still take place in December.

The international demand on the Fed not to raise rates was coming from all sectors and regions, including the Bank for International Settlements, IMF, World Bank, China, and various other central banks and institutions.  With a level of domestic justification for a rate increase, quantified by previous Fed statements on inflation and employment levels over the last few years (all of which have been reached), it can be assumed that the lack of international justification and support influenced today’s decision.

With the restructuring of the international monetary system high on the agenda of the global institutions, it is probable that the decision by the Fed today is signaling that the US is in fact willing to negotiate and facilitate the development of reforms.

The deadline for the 2010 Governance Reforms has come and gone with little fanfare.  The framework of Plan B reforms is scheduled to be determined by Sept 30, and implemented by December 15th.  This timeline would correspond with the next FMOC meeting and decision on rates.

The announcement on the Plan B framework could be announced at the IMF and World Bank meetings in Peru next month.

In that time we can expect for there to be further diversification of reserves, especially from China, and an increase in this diversification from the European Central Bank.  But the real diversification and substitution will have to take place through an agreed upon framework and implemented before the Fed raises rates.

This would further suggest that the Fed is working alongside its monetary partners on reform, and the delays on the 2010 Governance Reforms is the catalyst for the restructuring.

The diametric opposition presented by delaying IMF reforms, which works counter to international demands, and delaying interest rate increases, which supports international demands, would strongly suggest that the diversification of USD reserves around the world is supported by all interested parties.

The balance between managing inflation and increasing interest rates is challenging, in that if the Fed increases rates too much and too soon, the pressure on the emerging economies, such as China, to speed up the rate of reserve diversification will intensify.  This accelerated reserve diversification will mean a flood of USD coming back into America, causing higher levels of inflation, which in turn would mean the Fed would need to increase interest rate even further and harder, which would cause even deeper reserve diversification.

The point of international monetary reforms is not to eliminate the USD all together, but to simply balance the surpluses and deficits between the major players, and diversify the reserves to more fairly represent the economic realities of the world.

As such, the dance of interest rates, reserve diversification, and exchange rates will be sporadic and random, like a piano tango between mismatched pairs.  The delay in interest rate increases by the Fed is extremely promising in that it suggest they are willing to work towards stabilizing the international monetary system, and working towards the meaningful restructuring which is required.

Perhaps the transition from the unipolar dollar based system to the multilateral system will not be as harsh and destructive as some of us have considered.  - JC

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50 Comments on “Predictions of a Sept Crash Fade (FREEPOM)”

    1. Pension funds are not going to be "condemned" in the next month, two, three, or six. Low interest rates obviously mean lower returns on pension funds, but to say the Fed just "condemned" pension funds is disproportionate and inflammatory. I despise such statements as it only leads to fear and confusion. If low interest rates were going to "condemn", meaning to show disapproval, or punish, I'm sure people would have stopped investing in them 5 years ago. Low returns are low returns. The other side of that equation is the cost of living for seniors. Some things go up. Some things go down. These broad cataclysmic statements are meant to feed negative emotion, not educate and inform. What's my take on the pension crisis? My answer....which one? Every generation fancy's a pension crisis.

      1. Sometimes I think it is Mr. Armstrongs intention to feed negative emotion, not educate and inform altough he alleges this is all he wants to do for mankind.
        There are many who despise him and think he made a deal with the gov when he left prison.
        There are also many who think he and his AI computer Socrates are the greatest forcaster ever.
        What do you think of him?

        1. Honestly I don't know enough about him, or his analysis, to say much of anything. I know some can't believe it, but I haven't read much of his stuff. Really nothing outside of the link I was provided yesterday. I can gather from other headlines, and such, that he has some 2015:75 (or something like that) prediction about total collapse. That turns me off right out of the gate. I'm very selective about the sources I use to build up my own analysis and conclusions.

          1. 2015.75 Armstrong never said a complete collapse. He states that this date marks the top in Government. Meaning peoples trust in Government to govern. His computer predicts a collapse of the system come 2032.95. as the top and the bottom 2037.25. The bottom for this current 8.6 cycle is 2020.5

            And there is no way he ever made a deal with the government. He recently published the transcript from his case where the Judge couldn't believe the lack of due process on the claims of his stealing gold coins from clients. He posted the article Sept 9 or 10 on his blog.

  1. I see your point that seniors will still afford items as they become cheaper. But as far as promised payments based on a certain percent of return invested on those deposits that will not be available based on current 0% rates does equal a mathematical problem does it not?

    Interest is actually supposed to be a measure of expected inflation and is essentially dealing in options. Whatever the rate of interest, the lender is expecting that the money will buy the same amount of assets upon repayment plus some profit in excess – the interest rate + inflation. Bankers want the same purchasing value back upon repayment plus their profit which is the entire purpose of lending money. Yet historically, the boom and bust cycle is the rise and fall in the purchasing power of money as measured in terms of assets. That is what is rising and falling – the purchasing power of money against tangible assets/services (labor). When the purchasing power of money declines and assets rise, we call this a BULL MARKET. When the purchasing power of money rise and assets fall, we call this a BEAR MARKET. (Armstrong)

    So low to zero percentage interest being paid to those who save rather then invest in the markets is saying the economy is bad and no inflation is expected? But assets are all rising. Collectible cars are thru the roof, collectible art thru the roof. Something does not add up.

    1. I agree for the most part. Low interest rates are not helping pensions. My comment was based on the statement that this one specific delay of rate increase has condemned and doomed pension funds and the economy. Really? Rates have been low for years and pension funds are still here. Some are even investing through other means. This whole situation will turn eventually and pension funds will recover and be just fine. Unfortunately, as in all generations, some will suffer the volatility, while others do not. As stated, non-inflammatory and straight forward.

  2. I'm watching the leaders debate here in Canada. The Liberal candidate is pushing starting an infrastructure investment bank. Interesting, considering the trend of infrastructure banks which we have discussed here, used as mechanisms in the multilateral transition.

    1. That's interesting JC, I was wondering why Canada hadn't join the AIIB, even though they were early to establish trading hubs...perhaps that's why?

    2. Here in NJ the paper had an article about $20 billion infrastructure project for new train tunnel from NJ to NY. At first NY said last year no help investing in tunnel now they say NY needs the new tunnel and they will do what NY needs. So NJ and NY will go partners but they are waiting to see if the Federal Government will pitch in. $20 billion that's a good start to creating jobs!

  3. Well, you ballsed that one up. You said in 'Are You Ready for the IMF Governance Crisis?' that 'It is my analysis that interest rates will rise this week for the first time in nearly a decade'...

    1. And it was my analysis. I also said that if it wasn't in Sept it would be in Oct or Dec. The point being that the Fed can't keep delaying much longer.

      Nobody can get it right 100% of the time. Nor should we. We only learn and grow by being fallible. And I've learned a lot over the last few years. Can't wait to see how I think in a few more.

      Stick around, we'll learn together.

      1. Personally I think your analysis is very academic. That is why I read it. Maybe if you factor more variables into your models you would have saw it coming. Day traders saw this one coming a mile away 70%+.

        As a matter of fact hilsenrath confirmed it for us two hours before yellen. Thus allowing us to position our trades. This whole kabuki theater these past few weeks was an excuse to give the market a gift. At least that's how I saw it.

  4. You had first said that the Fed would raise interest rates In September. Then you said your new analysis pointed to a december hike. Are you still firm on that? I personally dont see it happening in December. In fact I see QE4 around the corner. I Find your analysis very interesting. You bring a much more sober perspective to the table. Just wondering how you were so off on this one. The whole market 70%+ saw it coming.

        1. That's only one interpretation of yesterdays FMOC announcement. There are competing interpretations. As usual, everyone will keep guessing and presenting their case as too why a certain outcome will take place. The "squid"? Really? Go back to the Zero Hedge comments section. If you want to comment and interact here on POM than you will need to act mature.

          1. And in conclusion, it is now being widely accepted, based on market reactions, that the Fed made a huge mistake by not raising rates yesterday. Perhaps an emergency session could be in order down the road.

      1. Thanks Dane. This is true. The reality is that an interest rate increase, or lack thereof, only makes up a very small and marginal part of what we review here at POM. The larger transition and transformation of the monetary framework is the focus, and where the rubber meets the road. Those that think interest rates will never increase may have had an opportunity yesterday to remain smug, but that will not last much longer. Nothing stays the same forever, and this too shall pass in the coming months. I'm not alone in my analysis that the Fed should have raised rates yesterday, or even before. There was obvious concern from major banks and institutions that the Fed was going to raise rates, so I was in good company with my analysis. And for the record, I have no meat in this game, so personally I couldn't care less either way, because the monetary transformation is happening regardless.

        1. It's obvious they should have raised interest rates. For the long term health and viability of our economy. But the Fed wont do it until it's shareholders say so. Until it's in their best interest. Obviously that wasn't September. Nor do I see them bursting bubbles right before Christmas. I think if they could they'd keep QE and NIRP going on forever. As you said they can't. But they will keep dancing as long as they can. As long as it remains in their personal interest to do so.

  5. "Honestly I don’t know enough about him, or his analysis, to say much of anything. I know some can’t believe it, but I haven’t read much of his stuff. Really nothing outside of the link I was provided yesterday. I can gather from other headlines, and such, that he has some 2015:75 (or something like that) prediction about total collapse."

    First, Armstrong IS NOT predicting a total collapse. His model is predicting a sovereign debt crisis and a crisis in government. The turn of which begins on or about October 1st.

    "Pension funds are not going to be “condemned” in the next month, two, three, or six. Low interest rates obviously mean lower returns on pension funds, but to say the Fed just “condemned” pension funds is disproportionate and inflammatory. I despise such statements as it only leads to fear and confusion."

    Armstrong has been saying for years that pensions funds (specifically public pension funds plus social security) are doomed if current policy continues. Yesterday's inaction by the Fed did not condemn pension funds in of itself. The problem has been festering and building for decades. If you cannot see that there are huge problems with pension funds and future funding of those funds, then explain to me where the money is going to come from to pay all current and future pensioners. Future pensioners and future social security recipients should be fearful if they plan to be totally dependent on a government pension/social security in their retirement.

    "That turns me off right out of the gate. I’m very selective about the sources I use to build up my own analysis and conclusions."

    Armstrong's model incorporates economic data/events/trends from world history. A common theme of his is "everything in connected". Armstrong's model has identified that certain events repeat in cycles. His model is NOT selective in the data it uses.

    Maybe you should be less selective and read up on Armstrong. It can't hurt, can it?

    Regards.

      1. Reading Armstrong is a pain in the a..
        I am not an english native speaker and I try for years to read his babble but mostly can not really understand what the point is.
        He also is ranting often about "these people" are clueless, idiots etc.
        Its very confussing.First I tought my reading skills are lacking but over time I read a lot of comments about his terrible writing style.
        So I agree, it can hurt, especially someone with your clear writing style.

      2. JC can can someone as open minded as you state that you choose not to do due diligence on investigating possibly as a great source of information that cost some organization a hundred million to produce. We as your extra set of eyes and ears out in the world are telling you this guy is very interesting and worth the look at.

    1. Armstrong’s model incorporates economic data/events/trends from world history. A common theme of his is “everything in connected”. Armstrong’s model has identified that certain events repeat in cycles. His model is NOT selective in the data it uses.

      Like i have said before I have followed Armstrong previously and some of his articles on history are very good, but I had to step back when he spoke on economics. Idk..he uses history to predict what is happening today and the future..He still thinks, at least the last time I read his material, that nothing in the market is manipulated. It is hard for me to believe that someone who is so aware and so intelligent could believe that the markets and most everything is not manipulated. So using history, knowing markets and much of the economic world is manipulated to bring a certain outcome seems a bit strange..how can history really be relevant in this scenario, when as far as I know nothing like this has happened in the world economic picture before. So.. again I will stick with JC. I am sure the Fed went back and forth in study as to whether to raise rates right now and as JC says, perhaps coming around on the reforms is a major factor in their decision.

  6. JC - Based on the action yesterday and today, it appears that what's being really targeted here is "Fed credibility". The Fed might still panic and raise the rate but that'll erode what's left of the credibility. The outcome will be the same.

    Markets will go down either way because the real issue is loss of confidence. At this point, there will be no credibility left in the current system or any currency. All stakeholders will meet, a new system will be negotiated, and whatever comes after that will be asset backed and debts will be restructured against these assets.

    It has to be asset backed because none of the currencies will have any credibility left by then. It could very well be the SDR, but without backing, it is as useless as the currencies in it.

    1. You may be spot on with that assessment. There was always going to be the loss of confidence part of this. The problem and reaction. The solution will be forthcoming. It just may grind out longer than any of us thought. In the original SDR's and the New Bretton Woods series, I talked about the SDR being asset backed. Then I drifted away from that somewhat. But you may be right. That, along with including gold in the SDR composition itself, would bring back stability and confidence.

  7. Hi JC, thanks for your work here on POM. I've been pondering various aspects of this financial system of ours and was wondering what you thought about various central banks paying interest on excess reserves especially in relation to low interest rates? Surely central banks are incentivising member banks to not lend to each other by paying interest on excess reserves and therefore the overnight rate has no effect?

    1. You're welcome friend. Some institutions and think tanks have discussed just that, having central banks pay interest on excess reserves. It would be meant as a move towards balancing accounts. It is always considered as a part of a larger framework, which would involve a level of substitution and diversification. I would suspect we will see a massive movement of reserves if something like that would happen. As I wrote in the previous post, reserves could be shifted into sovereign wealth funds and invested into the markets. This could be a temporary workaround, but I hope it doesn't happen because it will cause a continued lack of sustainability down the road.

  8. JC, so you are stating you believe Armstrog not worth your time or effort due to one read of one post, coupled with the opinion of another readers opinion who finds his writing unclear babble? I admit Mr Armstrong needs and should use the skill of an editor . But what I find he has to offer invaluable to the task of unraveling this economic disaster. I have found a great deal of integrity on many levels and in many areas for which he writes. His frustration and at times anger are completely understandable considering the experiences He had involving high level officials and a legal system that is so corrupt beyond comprehension and continues to this day. .Biased exists for everyone , it is the degree of bias that determines the clarity or incomprehensible babble. This can be determined quickly by reading further with minimal investment of time

    1. I can't say that he is or isn't. As I've stated I'm not familiar with his work, except outside of what has been mentioned here. Perhaps it is worth the time. My point is that my time is valuable and between my family responsibilities, professional responsibilities, and this site, I don't have the time to take on another branch of research, or interest. I read enough material, both official policy papers, and the material of other analysts, and find I have good coverage. Perhaps I'll take a closer look eventually, but based on what I'm hearing I doubt it'll grab and hold me. Sorry if anyone doesn't like that. I do what I do and present my analysis as I have. My confidence in this will not wane.

  9. Not sure why you're getting defensive about calling the fed the squid. It's a pretty common colloquial term for them. Crozier started calling them the octopus over a hundred years ago. Are you here to present facts and analysis or manage people's perceptions about the Fed and their policies? Very confused. Like I said I enjoy your academic sober analysis and your long term views are quite interesting. Even if your short term views aren't quite as spot on. We'll see who was right come December.

    1. I've heard of the Fed referred to as an octopus, but not squid. The assumption was that you were referring to Yellen as the squid. Hardly defensive on my part, and one miss doesn't amount to "short term views aren't quite as spot on". I understand why you would feel the need to say that though. And its not a matter of being right. I could care less about being right. Its about creating understanding and attempting to define the monetary trend. I hope you're less confused now Ivan the Terrible. And thanks for finding some sense of value in my modest endeavor, because, you see, that's what I'm really here for, to help others see a different and more plausible outcome . Plus to filter the clowns out as well so that the serious readers aren't distracted. I've honed this skill pretty tight over the last few years.

  10. I have found difficulty finding credible information. I am unsure about decisions being made out of public eye and not subject to public scrutiny even made based on amoral thinking. I find it typical to come across bloggers who play the blame game, name the cabal as the perpetrators, and BRICS as the alliance that called foul. Part of the idea is that we are entering a "Golden Age". I have found little factual basis for this. The exception to this is a mention that our collective consciousness is developing self awareness undulating as it is now. Of all the blogs I've read I find the same spun information. My main interest is understanding how the collective consciousness is developing and what naturally is an effect of that development. JC, your blog has aided, greatly, in understanding the "script" that many follow without a critical analysis.

    1. I intend to focus more again on the consciousness development of such matters. Its been a tough summer for me to concentrate, or perhaps not concentrate, on such things. When I don't include the esoteric and conscious perspective I begin to feel more and more empty. This will have to change.

      1. Ha, I experienced the same! This summer my focus has been on business, holidays, money and family. One would think this is a good thing, but it is remarkable how internally empty I came out of it.

        I guess I often forget the being part of life when the doing part becomes exciting...

  11. I think this decision aligns quite nicely with the trend of more coordinated central banking.

    What's happening concerning central banking in Europe is kind of a micro pattern of what to expect on a global scale. And we all know national sovereignty will have to wane quite a bit for the multilateral framework to take hold in a meaningful way.

    I suspect a deal was struck when the implentation of the Yuan within the SDR composotion was delayed by 9 months. (Which is a common gestation time, btw.) The interest hike delay might be America paying back its dues.

    After all, apart from normalization, calibration or synchronization will be another important ingredient to a steady and controllable global economy.

    JC, I believe your analysis still stands strong and a mere delay of several months is not changing the larger pattern. It might also provide us an opportunity to find a potential missing ingredient. Maybe a philosphical or esoteric analysis might bring us a step closer to uncovering the dance that is being performed by the organised elite.

  12. The decision of the IMF, to change the date until September 20, 2016, for the inclusion of the yuan in the SDR basket, makes JC articles come a bit in a "stop" on the issue SDRs, but so far, his vision on-financial geostrategy has been a demonstration of logic and a real presentation of what is happening in the world of geopolitics and finance.

    The main topic of JC and the central pylon of its future projection that distinguishes it from other analysts, some of international renown, is that the solution to the global problem Loans is not the yuan and the ruble, nor the Brics, but the SDR.

    In other words, the system is reset, eliminating the dollar as a reserve currency and pushing the SDR as the new global reserve asset macro, but all staying inside the frame- FIAT perhaps be new money balances that were essential for the same reformed system proceed.

    Amstrong on the analysis, I can say, if he is convinced that the markets are not handled and everything that happens is a natural dynamic, it is impossible for his final conclusion is attached to reality.
    Furthermore if an analyst however good, does not see the manipulation of finance, within lso geostrategic events, such as not a good analyst focused on the macro global reality.

    It can be focused on the history but history is written by a few moments to have the power to direct events internationally.
    That if we leave the global framework, we are in the Exopolitics with the mirror of earthly reality.
    Ie geopolitics is dictated from outside our world, here there is only foremen and programs that meet orders.

    In conclusion everything is manipulated and distorted so that people do not know that occurs in both the esoretico-exopolitical theme, as in the filozofico-geopolitical issue that we live today.
    A simple demonstration that everything is manipulated, is in sight.
    All analysts, commentators and experts on finances, talk about everything ... except central theme of future -Solution SDRs.

    Our slavery is evident not only informative cognitive level but at the level of spiritual perception.
    I mean we limit what happens in this world, but on a global level, but is not the case.
    Our slavery has a cosmological dimension, for this reason a holistic analysis has to touch the topic exopolitical, to have a more or less real scale image.
    People are manipulated in the political-finianciero, like Billion people are manipulated in the theological issue of religion issue.

    It is senciilo. In the world of geopolitics solutions and "good news" and promisiones hopes of a new financial system, a new era of prosperity as Hacem most sources are available in internet- offer a false salvation via China-Russia- Brics.

    The same happens in the religious world for 2,000 years to go no further back.
    Christians await the salvation futura- a wonderful but delusion, meaning through Jesus Christ, who will return in power and justice, offering paradise to cristianaos faithful, but this story is pure Sino Christians forgive me read this comment , but the truth is manipulated beyond the truth.

    We live in a world and in an engineered solar system.
    We see hundreds of contactees sent messengers from other worlds here (at least so they say that are sent from other planets) to give news and internet messages -the this full- but none match what they say about the history of being human, I think everybody lies 60 to 90% and the rest are telling the truth.

    Manipulation is tremendous. So to have an ideea more or less, you have to pick up pieces, pieces, and so try to place them in such a way that at the end of a remote ideea us, unclear what happens out there and in here.

    What happens outside the planet determines what happens inside. This is my conviction.

  13. I see you, JC, a little worry for missing your prediction. You are doing a very good job helping many of us to understand the challenges that we are living today in the present context that monetary system offers.
    May be you did not take into account, that it had been very impolite to let The Pope coming at Congress with a financial fireworks outside and Mrs. Yellen did it. I am sure you agree.
    Regards.

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