On Wednesday we get the Federal Reserve almost certainly announcing a 25bps rise in its Fed Fund rate.
This will be the second raise in the last eight years, which should tell you everything you need to know about the effectiveness of the Obama economic miracle.
And yet the Feds’ move over that time allowed for the greatest transfer of wealth from the middle class to the 1 percenters took place between 2008 and 2015, with the QE actions of the Fed.
No growth, no interest on savings nor meaningful salary increases for the 99 percenters. Only when the disparity between the haves and have-nots was so out-of-balance did the push for $15/hour minimum wage initiatives begin to receive traction.
I believe it is quite provable that more than $4 trillion was pumped into financial institutions to keep the doors open, which was the entry point for the 1 percenters to get their hands on this cash.
If you believe that interest rate derivatives were employed, which makes perfect sense to ramp up the leverage on the move since the Fed has vast control over that market, that number could be as high as $40 trillion in largess bestowed on the global banking system.
So in the grand scheme of things a 25bps move twice over the last eight years allowed the global central bankers to take most of the risk out of the markets for the global banks to heal damaged balance sheets.
This is why the Fed and the European Central Bank are so intent to tell the markets well in advance of their moves, so not to damage the institutions with a rogue move sending interest rate swaps careening thereby causing losses. It could also be why the Fed did not move its rates earlier in 2015, when most of the bond market saw a green light for the rise. The markets were not positioned well in their derivatives books.
This proposition should be provable if you have the expertise to forensically look at the banks derivative trading books at the time, but I’m sure that’s proprietary information. No surprise.
So we get a rate rise Wednesday at 2pm. There will be no increase in the interest rate on your savings, there will be a bump up on interest paid on loans and credit cards, however.
All of these moves by the central banks, has little to do with President-elect Trump’s administration coming into office. All this happens on a level above individual countries and its leaders.
Where do you think all this capital is coming from flooding the stock market to daily all-time highs. The reallocation of capital from the bond market and interest rate swaps is moving to equities to park it for a time until the reset in derivative markets takes effect in early January.