#7 THE ENDGAME: When the Fed RAISES Interest Rates

In this video Mr. Fed describes the endgame scenario that central bankers around the world are attempting to avoid, i.e. when a sell off in Treasuries causes the Fed, against their will, to RAISE interest rates.

Although this endgame scenario is rarely discussed in the United States, it is nonetheless a cause of deep concern and anxiety in financial circles.

RAISING interest rates in this fragile economic environment would have profound deflationary implications for all of us.

Part of a series on Federal Reserve policy by Mr. Fed.




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[SilverRose09]

HI Mr Fed,

Do you know that commercial banks have 700 billion parked on the Fed. to buy treasuries for a while, I wonder what this will mean? That they can hold interest rates low by buying their own treasuries?

[Crashof2008]

This represents that during the crisis banks lost faith in each other, but not the Fed. They were more interested in return OF their capital than return ON their capital.  Additionally, because the Fed began paying interest on such deposits, this encouraged this type of behavior.

[lorax2013]

Yes, if rates rose dramatically, it would be extremely deflationary at the moment. It would also create massive defaults and ultimately a default on US govt debt - either directly or behind the scenes thru the necessity of buying up our own T bills offshore. So once the US had in effect defaulted on their debt obligations you would have currency collapse. Either way, the dollar ultimately loses in value - looking at the big picture, you can't run up debt and not hurt the currency.

[Crashof2008]

You assume a fact not in evidence, that the US will default on its debt. That isn't going to happen while Volcker is in charge.

But it's impossible to convey this to most Americans. Europeans understand it, but Americans can't seem to grasp it.

[lorax2013]

Yes, if you could guess when the recession would start and stop better than bond traders you could jump in and out of the bond market at the right time - obviously. You could have done the same thing in the 2001 recession. Problem is, you have to time it right or you get stuck with rapidly devaluing T bills just like after 2002.

[Crashof2008]

Look at the enormous capital gains made by holders of Treasuries over the last year. Bought on margin, they have made money hand over fist.

If you don't feel comfortable riding the yield curve, that's your choice. But that is how fortunes are made. And not many fortunes will be made in this Depression.

[Redpony68]

This man is brilliant. I think I have learned more from his videos today than any class I have taken in school.

[777aqua777]

hello Mr Fed ,..thankyou for your videos they are much appreciated ,they are as good as doing a course and are a timely reminder to us all.. please could we have a new video ? as this would be appreciated by all.thankyou.

[supergnorf]

thank you, been watching your clips with great interest, insightful and good (if not light/optimistic) analysis.

[jasy221]

Mr fed you are so correct,george soros forced

norman lamont to raise interest rates to 15% to support the pound when traders shorted it,but it only was forcing the UK into recession,and he had to reduce interest rates by 5% or so which led traders to sell the pound,the BoE was definately following the markets lead,and got beaten, i hope you make some more videos,as a former market maker you have a lot of insight. I hope to purchase JP morgan for 30p per share in the next few years, hehe!

[JackNeedles]

This guy rocks. I love his videos.