YCC and ICC – Rolls off the Tongue
In recently unsealed and de-classified documents, the public is being now made aware, for the first time, of the extent to which the United States and the Soviet Union were arming themselves to the teeth, first with nuclear weapons, and then with thermonuclear arsenals.
The number of accidents (nuclear-armed planes crashing, nuclear submarines sinking, leakages, lost missiles, radar malfunctions {pointing to imminent nuclear war}, the famous Cuban Missile Crisis and many others) that could have easily ended in nuclear war is astonishing.
Those of us who were born after the 1970s don’t really understand the extent to which nuclear war was real, and even those of us who feared it in the 1980s can relate, but since 1991, the threat of nuclear war has essentially ENDED.
If you’re under 35 and living in the West, you hardly understand the concept of threat, at least until now.
The invasion of Ukraine ended the Long Peace in Europe, and whether or not you believe it was justified, the big picture is that a nuclear power is now engaged in a war against NATO, which is also nuclear.
China and the United States, two major nuclear nations, are in a proxy war.
One of the obvious results of war is inflation, and Jerome Powell, who doesn’t talk a lot about politics – geopolitics, for that matter – is keenly aware that inflation is out of his hands.
His job is to smoothen it out, to make it livable, but a bank with the power to lower/raise interest rates and to buy/sell bonds, can’t influence trends that 8 billion of us are creating.
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The bank can moderate their volatility and address them in a way that makes them more adaptable, but the Federal Reserve has never, in its 111 years of operation, changed a major trend.
One of the tasks that it would take on next is that of cushioning the blow of higher interest rates on the government’s balance sheet, because interest payments are getting out of hand.
Washington can’t just run trillion-dollar deficits, carrying 4.5% interest payments, without weakening its strength to deal with crises that emerge.
The Federal Reserve cannot begin QE (which is the process of buying Treasury bonds) since they are actively selling them, so it must use new tools, or at least call Quantitative Easing in a new way, so the public doesn’t reject it and start to panic-sell stocks.
What we believe Jerome Powell is working on is what’s known in Japan as Yield Curve Control (YCC): In this method, instead of focusing on the Fed Funds Rate, as a short-term yield for the economy, the bank changes its approach to long-term and builds a plan to hit a target yield, without drastic action.
Powell has already laid the groundwork for this, telling Wall Street that getting to 2% inflation will be long and bumpy and I do believe that with CPI numbers coming in hot, he will have to change his tactics.
This will usher in a new era for American central banking.
Best Regards,
FutureMoneyTrends.com
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