The Fed’s Con Game Remains Alive and Functioning Well


The Fed is caught in a trap. It wants to raise interest rates so that it has some tools in its toolbox to jerk markets around to suit the shareholders of the Fed in the future. Given economic reality of an economy destroyed by the Fed, it cannot raise rates. But in order for it to retain credibility, the Fed must get you to think it can raise rates and come to your rescue. Like any good con job, the Fed must keep you thinking it is not potent but that it will use its capabilities to do what is best for you, even when in fact it is doing exactly the opposite.

So the Fed plays this little game of on-again/off-again interest rate rises. With most naïve Americans buying into the big Fed lies, quarter after quarter, market if not economic disasters are delayed for the time being, only to face an ever larger one looming in the future.

The charts above show the action of gold (green line above left) and the Dow Jones Industrials (above right) on October 28, 2015, the latest day Fed minutes were released. The Fed has once again used deceptive language to con the public into thinking it has the potential to raise rates and thus remain competent in managing the economy. So true to form, when the Fed released its minutes, the markets reacted as if they believed the Fed can raise rates even though the horrific economic data had market participants believing there was no way in hell that rates could be raised any time before March of 2016. The immediate reaction of both the gold and stock markets was to tank. Gold never recovered, but the stock market did, for one simple reason. The Fed must not allow the stock market to crash or that too will eliminate its credibility. And so it is likely after the Dow lost 100 points on the Fed carefully crafted language, the Plunge Protection Team went to work buying the indexes, which in turn served to trigger whatever shorts remained to cover their positions.

The Fed Can’t Allow Interest Rate Truth to Be Recognized

This is the truth that the Fed cannot allow people to know, if it hopes to remain in control. The Fed can never raise rates again! It may hope it can at some point in the future. It may actually believe that by some means, the economy will actually get stronger despite the fact that by destroying the price discovery for capital, it is destroying capitalism itself. Indeed Keynesian economics, which all these PhDs from Harvard, Princeton, and Yale believe, have taught them that market pricing of capital is unimportant.

But clearly we are seeing more and more money go into the Wall Street equity and debt market gambling casino as the U.S. and indeed the global economy continue to get weaker and weaker. But the proof is in the pudding, as they say. Yes, the government and their apologists in the mainstream media spin and cook the numbers to make them look better than they are. But statistical lies and deception cannot repair the balance sheets of millions of Americans who are slipping from some degree of middle class into poverty and a food stamp world.

So the reality of the capital market and real market economy of the U.S. must be disguised. Since the Fed said it would make rate decisions based on data dependency, the markets were almost 100% certain that the Fed could not raise rates in 2015. Some portion of the market thought perhaps by March 2016 the Fed might raise rates. Others thought perhaps by June 2016.

This one-way bet against the Fed’s potency was reaching a danger zone for the Fed because it would be an acknowledgement on the part of the public not only that the Fed is impotent, but that the dollar—the world’s reserve currency—is finished. And if that were the case, the dollar would be in danger of a collapse and we would be off to the hyperinflation races that economist John Williams has long predicted.

So like any criminal enterprise caught in a trap, the Fed is trying to con and lie its way out of trouble. In the context of being caught in its own dirty interest rate trap, the Fed must keep the confidence game alive as long as it possibly can. Otherwise it’s game over for the Fed and the rich banking interest that owns the Fed’s capital. The danger that the Yellen Fed was facing was the simple truth that it has, with QE, boxed itself into the position of NEVER BEING ABLE TO RAISE RATES. But to try to stay its execution, the Fed must con you into believing otherwise.

The carefully worded statement from the Fed made public yesterday and then followed up by mainstream Fed media apologists was orchestrated to keeping the market evenly balanced. Indeed in the propaganda and manipulation game, the Fed’s words once again succeeded as the market is now evenly divided between those who think the Fed can and will raise rates in December and those that don’t. Prior to the minutes sent out yesterday, almost 100% were betting on no rate rise until March 2016 or later. That was a psychological feeling that was threatening the Fed’s control. So with some careful wordsmithing, the Fed has, at least for the moment, regained control.

But the Natives Are Increasingly Restless

Keeping the public ignorant and confused is one defense of the establishment. As long as there is not a clear understanding of the underlying cause of our economic decline, it’s hard to target the Fed as the actual cause. Yet people know something is going horribly wrong because those who still have paychecks find that their living standards are in steep decline. Many with paychecks make nominally much less than they did years ago and virtually all middle-class folks know the cost of living is much higher than the government tells them it is.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.