Wednesday, June 19, 2024

MAHARREY: They Break It! We Buy It! Fed’s Financial Mess Is Ours Too

(Mike Maharrey, Money Metals News Service) The government and the Federal Reserve broke the economy and we have to buy it! Things may seem OK on the surface, but the economy is sliding toward a crisis. It’s just a matter of time.

In this episode of the Money Metals’ Midweek Memo, host Mike Maharrey explains how and when the government and the Fed broke the economy, and talks about one sector where the damage might manifest itself first.

Maharrey starts the episode with an analogy, comparing the economy to a house he bought with all kinds of hidden wiring problems. He makes the case that likewise, the economy is riddled with problems most people can’t see.

He goes on to explain why higher interest rates will eventually push the economy over the edge. But he argues that the Fed didn’t really cause these problems by raising rates. It did so years ago when it pushed rates artificially low and held them there, along with launching round after round of quantitative easing.

Where might the crisis start? There is no way to know for sure, but Maharrey highlights one sector ripe for a collapse – commercial real estate. He explains how Fed monetary policy and government actions incentivized debt that is now impossible to service. He also reveals how problems in the sector could spill over into the broader financial system.

This leads to a broader discussion of the boom-bust cycle driven by Fed monetary policy. 

Maharrey argues that one cannot grasp the economic big picture without understanding how Federal Reserve monetary policy drives the boom-bust cycle. The effects of all other government policies work within the Fed’s monetary framework. Money-printing and interest rate manipulations fuel booms, and the inevitable attempt to return to “normalcy” precipitates busts.

Mike then points out where we are in the current cycle as he compares this go-around to the 2008 Financial Crisis.

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