What Did He Say? What Did He Mean?

elderly thinking. Emotions and gestures. Think not, do not understand, Think out. The concept of learning and growing elderly. Cartoon illustrations vector - What Did He Say? What Did He Mean? How many of you used to play the game, “What did he say? – What did he mean? The implication is, if you take the words literally, you miss the message big time.

The classic example was a young man pursuing romantic interest in a cute young girl who says, “I like you as a friend.” While it appears to be a nice compliment, any young man hearing those words knows they are romantically doomed.

Various Fed Heads regularly issue proclamations, using a lot of confusing $2 words, called “Fed speak”. Pundits scrutinize every word they said, trying to determine what they really meant.

Here’s some recent Fed speak:

“Recent indicators suggest that economic activity has continued to expand at a solid pace. …. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. …. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent.

…. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.

In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt. …. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.

…. The Committee is strongly committed to returning inflation to its 2 percent objective.”

Wolf Street reports:

“‘Hike’ and ‘rate hike’ were mentioned 8 times…during the FOMC’s post-meeting press conference. Those terms weren’t mentioned at all in the press conferences during Rate-Cut Mania, which were all about ‘rate cuts,’ how many and when.

…. ‘So, let me address cuts,’ Powell said. …. ‘I don’t have a probability estimate for you. But all I can say is that we didn’t think it would be appropriate to cut until we were more confident that inflation was moving sustainably at 2%. Our confidence in that didn’t increase in the first quarter. And, in fact, what really happened was we came to the view that it will take longer to get that confidence.’

‘But there are paths to not cutting. And there are paths to cutting. It’s really going to depend on the data.'”

The best Fed decoder I know is friend Chuck Butler. Chuck regularly sifts through the Fed’s tea leaves. We both feel the Fed is “itching” to cut rates to please the banks and politicians.

After the recent Fed speak proclamation, I contacted Chuck. Is the Fed changing course or just more double-talk?

DENNIS: Chuck, thanks for taking your time for the benefit of our readers.

Sherlock detective on the trail smoking a pipeLike Sherlock Holmes with his magnifying glass, pundits are combing over current and past official statements, looking for clues as to what lies ahead.

What jumped out to me was the 2% goal. At one time it was firm, now rate cuts are possible if they are “confident” we are moving in that direction.

What does he mean? Is he trying to please everyone who can focus on a sentence and find what they want?

CHUCK: Thanks Dennis… The Fed Speak is something that was coined during the Greenspan era, who was famous for confusing the markets, and economists. Powell has taken a page out of Greenspan’s Fed Speak Book…

I feel Powell is getting tons of pressure from the Elites, and Gov’t. to cut rates before this current downturn in stocks becomes a rout. But Powell knows if he cuts rates the sticky inflation that exists will come back even stronger…

So, Powell tried to appease everyone with his statement… I still feel Powell’s Fed has an itchy trigger finger on the rate cut gun, and I wouldn’t be surprised if he cuts rates this fall before the election… wink, wink…

DENNIS: Volcker wasn’t faced with $34 trillion in debt when he raised interest rates to 20% and corralled inflation. Powell can’t do that; the government would go bankrupt.

Do you feel Powell is planning to keep rates where they are hoping inflation comes down over a longer period of time than it took Volcker?

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CHUCK: He has no other choice at this point… he fueled the Gov’t overspending for years. My mom used to say, “you made your bed, now lay in it.”

“The most important thing to remember is that inflation is NOT an act of God, that inflation is NOT a catastrophe of the elements or a disease that comes like the plague. INFLATION IS A POLICY.”

— Ludwig von Mises

I’ve continually said the Fed wasn’t really interested in taming inflation, but they put on the show of doing that, so that the markets wouldn’t see what it was they were up to. If they were really interested in taming inflation, they would have raised rates to 10% – But as you said, they can’t do that…

The best way to deal with $34 Trillion in debt is to inflate it away.

DENNIS: Banks must now pay higher interest rates, competing for deposits – cutting into their profits.

Birch Gold tells us:

Not even the FDIC can put lipstick on this pig

FDIC Chairman Martin Gruenberg presents quarterly reports on the American banking system. …. Here are a few (4th quarter 2023) highlights:

  • Net income fell 43.9%
  • Unrealized losses on banks’ assets total $478 billion
  • The FDIC’s deposit insurance fund has a reserve ratio of 1.15% or $1.15 for every $100 insured

…. SVB failed when it was forced to realize a $16 billion loss. In other words, potentially there are 30 more SVB-sized catastrophes ahead of us.”

“Unrealized losses” aren’t losses unless the borrower defaults. Why can’t banks just earn less money – when their holdings are paid off, just renew them at current rates? We do that with CDs all the time.

CHUCK: While these are currently paper losses, they must be reported. If there is a run on the banks, they would be forced to sell those loans at a loss to pay depositors. It would take changing the accounting rules to allow them to do what we can do. God forbid, bank profits and executive bonuses would be reduced!

Failed banks just get gobbled up by the “Too Big To Fail” banks, with losses passed on to the taxpayers.

DENNIS: Tom Dyson’s article A Complete Incineration suggests:

“Bondholders see what’s coming. Governments are going to gate them (prevent them from selling) and force them to accept negative real interest rates. This situation is known as Financial Repression.”

Chuck, this creates three questions:

  1. Do you think the government can/would do that?
  1. How would foreign governments deal with their US debt holdings?
  1. If they “gate” the banks, wouldn’t they be exempt from showing losses on government bonds?

CHUCK: Dennis, as we’ve seen in recent years, the Gov’t does whatever it wants, because “We The People”, allow it. So, yes, I can see the Gov’t gating the Treasuries that are held; not allowing them to be sold…

Relating to your earlier question, that would require passing a law that says that “unrealized losses from Treasuries will not be subject to show losses on their books”.

Foreign Gov’t’s would stop buying new issues when they are brought to the market. The foreign Gov’t’s will continue to hold their existing bonds until maturity, and then no mas….

The big question then – “who’s going to buy our debt?”

DENNIS: I read where the Treasury needs to borrow $243 billion, followed by $847 billion in the following quarter. The $1.5 trillion deficit projection is a joke.

It’s no wonder Powell indicated the Fed will slow the pace of unloading their current debt holdings, they are swamping the market with bonds that need to be bought.

What happens if no one wants to borrow our debt at the 5 ¼% – 5 ½% the fed is willing to pay?

CHUCK: I’m concerned that the Gov’t would require retirement accounts (IRAs and 401k’s, etc.) to buy Treasuries and nothing else, which would pick up the borrowing shortfall. And since the treasuries couldn’t be sold (mentioned earlier), retirement accounts would have to wait for maturity to cash out.

This is a real mess, Dennis. Sadly, we, as a country, could have prevented all this from occurring…

DENNIS: This is creating a real dilemma for the Fed and Treasury department in an election year.

What did he say? What did he mean?

Has Powell changed his stance or is he still “itching” to cut rates?

CHUCK: I feel he wants to cut rates, to appease his “bosses.”

Powell also said, “I think it is unlikely that the next policy rate move will be a hike.”

If Powell cuts rates too soon, as Volcker did, inflation will come back with vengeance, and eventually break down the economy, the consumers, and banks… If he doesn’t cut rates, then our financial system will see defaults. As Bill Bonner says, we have only two options … Inflate or Die… It’s your choice, Jay Powell… what will you choose to do?

Dennis here. Don’t be fooled by the current Fed speak, inflation is far from tamed and there is no guarantee that it will be brought under control. We survived the Volcker induced recession and would do so again if Powell hangs tough. Hang in there Jay….

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On The Lighter Side…

Some odds and ends this week.

Last week I finished my radiation treatment. I had 12 zaps this time and don’t feel nearly as much fatigue as the last time when I had 35. Jo is also recovering nicely from her knee surgery. Last week she started driving again, which was a bit more challenging because it was her right knee this time. We are hoping she will be released in early June so we can spend time with the family in Indiana.

A couple of readers asked why the Amazon link was taken off our website. Readers were helping out by using the link for their purchases. Amazon changed their policy. If I want to promote a specific product, they are fine with it; however, shoppers going through our link to do their normal shopping is discontinued. While I’m not pleased, I can understand why the change makes sense for them. Thanks to all who pitched in while the program lasted.

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Quote of the Week…

Money Vs. Votes - honest vs corrupt politician concept“The advocates of public control cannot do without inflation. They need it in order to finance their policy of reckless spending and of lavishly subsidizing and bribing the voters.”

— Ludwig von Mises

And Finally…

Some great lines from famous humorist Will Rodgers:

  • The taxpayers are sending congressmen on expensive trips abroad. It might be worth it except they keep coming back
  • Lobbyists have more offices in Washington than the President. You see, the President only tells Congress what they should do. Lobbyists tell’em what they will do.
  • The trouble with practical jokes is that very often they get elected.
  • With Congress, every time they make a joke it’s a law, and every time they make a law it’s a joke.
  • Government investigations have always contributed more to our amusement than they have to our knowledge.
  • If you get to thinking you’re a person of some influence, try ordering somebody else’s dog around.
  • Congress is going to start tinkering with the Ten Commandments just as soon as they find someone in Washington who has read them.
  • Things in our country run in spite of government, not by aid of it.
  • A king can stand people’s fighting but he can’t last long if people start thinking.
  • America has the best politicians money can buy.
  • Invest in inflation. It is the only thing going up.

And my favorite: (more true than funny….)

  • The crime of taxation is not in the taking it, it’s in the way that it’s spent.

Until next time…

Dennis Miller

“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken


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