(Mises)—Chairman of the Federal Reserve, Jerome “Jay” Powell, recently sent mysterious shock waves into financial markets with comments that suggested that Fed rate cuts might come sooner than expected.
Stock and bond markets took this as a good sign. They were already in a Santa Claus rally and broke out to new highs for the year. The interest rate on ten-year government bonds, which had already fallen by almost 1 percent since October, threatened to break support and go even lower. Financial journalists were all smiling with exuberance talking about the “Fed’s pivot.”
However, so far, this is just talk of a Fed pivot, not the actual Fed pivot, and its talk about the suggestion of a possible pivot. Most importantly, it’s all just talk that is positively goosing markets in the direction that Jay Powell wants: gains in stock and bond prices and lower interest rates in the economy heading into an election year. Investors, governments, and incumbent politicians love it. Incumbent politicians hope it all lasts past election day and they usually get their way.
From the Fed’s position, this will help them maintain three things:
- Their “higher for longer” sloganeering,
- The “soft landing” scenario,
- And most importantly, the Fed’s effort to reestablish its reputation, which was tarnished by their claim that the double-digit inflation from last year was only “transitory” as well as their tarnished image as a white knight, or economic savior, that is always ready, willing, and able to save the system.
I must admit that incumbent politicians usually get their way in election years and that they get unusually cooperative and bipartisan when it comes to election year politics. I’ve also admitted on previous episodes that the worst of the next economic crisis will probably get papered over until after the next election, especially the call of an official recession.
However, that is still going to be a tricky maneuver this year, given the contractionary and recessionary condition in the US, China, and most of the world. Especially with the European Union and New Zealand already slipping into recession.
I will do a recap of the economy in the next episode, but this episode will concentrate on longer term historical experience. This experience points in the general direction of an economic crisis ahead. It certainly does not point to the rosy outlook that markets seem to see.
We start this analysis with the historical experience regarding the Fed’s business cycle in the US economy during the post–World War II era. This is the period when the US dollar is the preeminent world currency, the US economy is the world’s economic superpower, and the Fed is the most important central bank in the world and the primary driver of world business cycles.
The first pattern that emerges is that unemployment hits a cyclical low just prior to official recessions and economic crises. Labor markets look unusually good just before they become very bad.
The second pattern that emerges is that the Fed reacts to bad economic conditions by cutting the federal funds rate, which is the base policy interest rate in the economy. This is when the Fed poses as a white knight, saving the economy, when in fact it caused the problem in the first place.
From World War II to the new millennium, the Fed’s rate cutting pattern was generally coincidental with recessionary periods in that the cuts started to occur during periods that would later be officially labeled recessions.
From 2000 to the present, the Fed’s rate cutting started to take place in advance of the official recession periods, preemptively, like they knew something was coming and were taking preemptive measures.
With no noteworthy exceptions, historical experience shows a lockstep linkage between recessions and the Fed changing policy in the direction of cutting its policy interest rate: the federal funds rate of interest.
I want to emphasize this: this change of policy of lowering interest rates is the “Fed pivot” everyone is talking about. However, this Fed pivot has historically ushered in bad economic times for most folks.
Of course, after they have overdone this policy of cutting interest rates and created an artificial expansion in the economy, possibly a stock market bubble, there is the other type of Fed pivot when they begin to raise rates again to supposedly to curb the higher rates of price inflation they have caused in the economy. The only other possible case is the Goldilocks scenario of a soft landing, but we don’t have historical experience to discuss that situation.
A stable stock and bond market could mask worsening conditions in the economy in 2024. So could very low unemployment rates that have been caused in part by the large reduction in the labor force caused by covid policies. A future article will explore some of the possible excuses that might be used to explain away the failure to achieve the soft landing and to set the stage for the “white knight.”
About the Author
Mark Thornton is the Peterson-Luddy Chair in Austrian Economics and a Senior Fellow at the Mises Institute. He is the book review editor of the Quarterly Journal of Austrian Economics, and has authored seven books and is a frequent guest on national radio shows.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
