## Economic Mismanagement: Inflation, Interest Rates, and Stimulus-Fueled Markets
This week, we’re diving deep into a series of interconnected economic issues that paint a concerning picture. From the Fed’s decision to cut rates despite rising inflation to the volatility of stimulus-fueled markets, we’re seeing the consequences of government intervention and the need for a return to free-market principles.
### Core CPI Rises One Month After Fed Cuts: A Premature Decision?
The September Core CPI, excluding food and energy, rose to 3.3%, exceeding expectations and marking a significant increase from the previous month’s 3.2%. This jump came just one month after the Fed implemented a 50 basis point rate cut, a move that DKI predicted would be premature. We warned that the rate cut wouldn’t effectively address inflation, which is now proving to be the case. The increase in energy costs, evident in the rising oil prices of early October, is further fueling inflation, a trend that will likely manifest in the October CPI report.
DKI believes that the Fed’s decision to cut rates was misguided and based on a misunderstanding of the underlying economic issues. While the productive private sector has been struggling for over a year, excessive government stimulus has artificially inflated GDP reports and created a vicious cycle of inflation. The key to addressing the issue lies in reducing government spending, not in further interventions by the Fed.
### The Fed Cuts Rates, but Treasury Yields Rise: A Sign of Deeper Problems
The market anticipated that the Fed’s rate cut would lead to lower borrowing costs. However, in the weeks following the cut, the yield on 10-year Treasury bonds rose by 44 basis points and the 30-year yield rose by 42 basis points, indicating a shift towards higher future inflation. This rise in yields contradicts the intended effect of the rate cut, suggesting that the market is not buying the Fed’s narrative.
This disconnect highlights a critical flaw in the Fed’s approach. While the Fed sets the overnight interest rate, the bond market determines the rates for the rest of the yield curve. The Fed’s premature rate cut has inadvertently pushed the market to price in higher future inflation, leading to a decline in short-term yields and an increase in long-term yields. The fundamental cause of this issue is excessive government stimulus, which the Fed is powerless to control.
### China’s Hang Seng Rollercoaster: A Cautionary Tale of Stimulus Dependence
The Hang Seng index experienced a dramatic surge last week, driven by the People’s Bank of China’s liquidity injections. However, the gains quickly reversed this week as the market realized that the boost was based on temporary government support, not on sustainable economic growth. This volatile behavior is characteristic of stimulus-fueled markets, where gains are often short-lived and unsustainable. The market’s quick reversal highlights the risks of relying on government intervention.
This situation should serve as a warning to the US government, which is also heavily reliant on stimulus spending to prop up the economy. The excessive reliance on stimulus is distorting market signals and hindering the growth of the productive private sector. The solution lies in a return to a free market and a reduction in government intervention.
### TD Launders Drug Money While Liz Warren Calls for Bitcoin Regulation: Hypocrisy at its Finest
TD Bank admitted to laundering more than $670 million in drug money over a decade, a blatant violation of anti-money laundering laws. This egregious example of financial crime raises questions about the effectiveness of regulatory oversight. Elizabeth Warren, a member of the Senate Committee on Banking, Housing, and Urban Affairs, chose to criticize the situation while simultaneously advocating for the regulation of Bitcoin, supposedly because of its use by criminals. This hypocrisy is troubling. Instead of focusing on regulating Bitcoin, Warren should address the significant issues within the traditional financial system, including the $670 million money laundering scheme that occurred under her watch.
DKI acknowledges that the oversight of anti-money laundering laws is inconsistent and ineffective. The magnitude of TD’s crime highlights the need for more robust regulatory measures. However, it’s ironic that Warren is focusing on regulating Bitcoin while ignoring the larger issue of financial crime within the traditional financial system. Her focus on Bitcoin regulation seems more driven by political ideology than by a genuine concern for combating criminal activity.
### How to Save and Invest When You’re Not a Finance Professional
In today’s economic environment, saving in fiat currency is no longer a viable option. Investing, particularly in the stock market, requires significant time and expertise. For those who don’t have the time or expertise to manage a portfolio, what are the alternatives?
DKI suggests diversifying your savings with investments in Bitcoin and gold, as these assets have a history of holding their value against inflation. Investing in energy, specifically oil and uranium, is another option, as energy demand is expected to continue to rise. Finally, index funds such as $SPY and $QQQ offer a cost-effective way to invest in the stock market. For those seeking guidance, DKI provides investment recommendations and student subscriptions.
We encourage you to take control of your financial future by diversifying your investments, staying informed about current economic trends, and considering alternative options to traditional savings methods. In an era of economic uncertainty, taking a proactive approach to your finances is more crucial than ever.