The U.S. Department of Labor's latest January consumer price index (CPI) rose strongly on February 10, its largest year-over-year increase in 40 years to 7.5 percent (previously, 7.0 percent), and accelerated for the sixth consecutive month, and the unseasonally adjusted core CPI in January, excluding food and energy prices, also surged to 6 percent annualized, and also hit a new high since September 1982, which fueled financial market speculation that the Fed would raise rates sharply by 50 basis points in March (as high as 80%).
Fed Chairman Jerome Powell
This also means that starting from February 11, the Fed will hold an emergency meeting at any time to issue the strongest currency turn signal to raise interest rates and shrink its balance sheet (sell its assets, as opposed to quantitative easing), and this inflation report once again shows that the Fed has been officially punched in the face and conceded defeat on the issue that inflation has insisted on for more than a year, because inflation is accelerating cyclically, and the Fed can only bet on all bets to suppress inflation.
But the Labor Department report shows that U.S. prices have generally risen, driven by sharp rises in rent, electricity and food costs, and the Bank of America report shows that the high inflation trend in the United States in 2022 and 2023 is far from over, as the data below shows, in the past 11 months, the US CPI has exceeded Wall Street and the Fed expectations for 9 consecutive months, and has risen for the 20th consecutive month. Meanwhile, the decline in U.S. claims for unemployment benefits for the first time last week also exceeded expectations, reflecting a stronger job market, which added pressure to the Fed to accelerate its contraction of monetary policy.
Immediately after, Bullard, the strongest voice of the Fed's hawks, spoke out in the hope of raising interest rates by one percentage point in the next three Fed policy meetings, and even BlackRock said that the Fed should end quantitative easing "now" to curb the sharp rise in inflation. Because, until mid-March, the Fed is still injecting bond purchase programs into the financial system (the current discussions of interest rate hikes and balance sheet reductions by the Fed are only verbal, not actual).
At the same time, U.S. stocks fell sharply with U.S. Treasuries (The Dow fell 1.47%; the S&P 500 fell 1.84%; nasdaq fell 2.10%), the global bond market was sold off, and the 10-year Treasury yield, which serves as the anchor for global asset prices, soared above 2% (reaching 2% for the first time since August 2019), so traders increased their bets that the Fed would raise rates quickly, reflecting their growing belief that the surge in inflation would drive the Fed's biggest rate hike in more than 20 years. As the chart below shows, on February 11, the US Treasury bond suffered a heavy sell-off, and the yield of the US Treasury of each maturity soared, the 10-year US Treasury yield exceeded 2%, and the 2-year US Treasury yield rose above 1.60%. The 30-year Treasury yield rose 7.1 basis points to 2.303%.
Not only in the United States, euro zone bond yields have also jumped, with German 10-year bond yields hitting their highest since the end of 2018, and indicator German 10-year bond yields surging 8 basis points to 0.3%, the highest since December 2018. Second-tier bond yields, including Italy, also climbed, with 10-year Italian bond yields rising 15 basis points during the day to 1.924 percent, their highest since May 2020.
It is worth noting that on February 11, the US Treasury 5-year and 30-year yield curves fell to only 35 basis points above the reversal, according to the data monitored by the US financial website Zero Hedging, although in the past 30 years, although there have only been two curve reversals, these two times have experienced a recession in the US economy (which seems to be the best way to treat inflation), which also means that the actual effective federal funds rate (EFFR) in the United States has become negative 6.96% after adjusting for inflation (7%), as shown in the figure. This is the worst time since 1954.
This also makes the real interest rates on U.S. savings accounts, certificates of deposit and treasury bills fall to a staggering minus 7.0%, even the real yield of 10-year Treasuries with yields of 2% slides into the abyss of minus 5.5%, and even the trading yields of most junk bonds are much lower than inflation, for example, the average yield of BB bonds is negative 3.9%, which means that investors have to take more risk, even upside down interest. As U.S. inflation continues to climb, real interest rates fall deeper into negative territory, in other words, it also means that all overseas U.S. Treasury holders, including China, Japan, the United Kingdom, Saudi Arabia, Germany, etc., may be going to invert interest to the U.S. Treasury in order to hold U.S. Treasuries, which is equivalent to a disguised payment to the United States, which was previously unthinkable.
A corner of the U.S. printing house
In this regard, Zhu Min, former vice president of the IMF, said that now there are more than 18 trillion bonds and other assets in the world are negative interest rates, the Fed balance sheet will lose the momentum of deep tightening in the process of negative interest rates, the only thing they can do now is to continue to expand, which has become very clear after the Fed in the high inflation data, after the formal concede on the issue of monetary policy and inflation, as reuters monitored data show that at present, The real shadow interest rate in the United States is in negative territory (please refer to the chart below for specific data trends).
This is very rare in the history of the US economy, and makes the indicator ten-year US Treasury yield hit 2.03% on February 11 in recent weeks, the highest in more than two years, being far away from investors, and even showing a trend of heavy selling, shorting US Treasuries is even more crowding Wall Street, it is clear that this is the result of the US to taste after opening the monetary policy of bottomless super quantitative easing.
Immediately after, Jim Rickards, a veteran Wall Street economist and author of the book "Currency Wars" in the United States, wrote on February 10 that since the subprime mortgage crisis in the United States, international mainstream currency analysts have been looking for signs that the main currency role of the us dollar has been reset, and it is clear that the current new coronavirus crisis will weaken the role of the us dollar. Because the current dollar has no gold support, and is constantly diluted by the Fed's bottomless release, the BWC Chinese the financial team of the headline number has also emphasized many times on different occasions, in fact, when the dollar is out of the gold standard and the dissolution of the Bretton Woods system, these two things themselves are indicating that the value of the dollar has weakened.
In this regard, Mooney, a defender of the US gold standard, further said that most of the economic and financial problems in the United States are not caused by simple globalization and unemployment, for which the Fed should bear responsibility, and at this juncture, an unexpected thing happened.
Fed Chairman Jerome Powell is showing gold coins
According to an updated follow-up report published on Feb. 10 by Crispin Odey, the U.S. Treasury Department may soon ban private holdings of physical gold and may try to monetize gold as the U.S. has effectively lost control of inflation since the coronavirus crisis, and this will become more clear in the context of precedent in U.S. history (see chart below, in 1933, for a variety of reasons, Then-US President Franklin D. Roosevelt confiscated the gold of the American people through a notorious executive order, and they were required to hand over the gold.)
In fact, this forecast is also consistent with the analysis of U.S. inflation by big institutions such as Goldman Sachs and Bank of America, because "when the Fed's policy targets its own economy without considering spillovers, it is likely to overdraft the dollar and U.S. credit, and there is no free lunch in the world."
In response, Crispin Odey said, it is clear that smart people have realized that the United States is now monetizing trillions of DOLLAR debt, which means that American individuals no longer have private rights to gold, and hoarding gold is even more illegal, and the signs have been shown.
We note that in recent months, several parts of the United States, including Idaho, Utah, Oklahoma and Arizona, are accelerating legislation or have made gold and silver legal currencies on a par with the U.S. dollar, trading will be the same as cash, and profits tax will no longer be levied. At the same time, more than a dozen digital gold currencies (digital gold wallets) are also beginning to perform the general equivalent function in the process of commodity trading. The report also seems to indirectly reflect the institutional loss of trust in the dollar, so this significance is most clearly reflected in the value of gold in the era of great inflation, that is, the uncontrolled paper money issued by the United States will depreciate due to inflation, but gold will not.
Dr. Greenspan, who has been Fed chairman for the longest time, best explained this, saying that in theory, a currency that anchors gold 100% can prevent price levels from rising, eliminate terrible economic cycles, and make all types of monetary harm virtually ineffective and morally just.
However, the BWC Chinese The Financial Team believes that global central banks, especially in Western countries, are strategically and theoretically possible in terms of implementing the gold standard, but they are not tactically feasible, because there is currently no sufficient reason for global central banks to abandon credit currencies, but when smart central banks really need to address the rising debt and inflation risks in the United States, the phenomenon of the dollar being reset in the currency market is expected to occur. (End)