Lately, there has been a lot of discussion about whether or not the Fed will hike its Benchmark Interest rates next week. In October 2014, when I released by first book ” Mass Capitalism: A Blueprint for Economic Revival“, I forecasted that QE will certainly end as I had forecasted in August 2013 in my article about Gold standard about China dumping US treasuries. In that article I mentioned,
Once US interest rates reach 0%, USD would have to devalue for any more QE. Additionally, Government will not be able to lure Americans into borrowing more to keep sustaining the economy. While devaluing USD might be considered good by proponents of offshoring, US should also take into consideration a combined 5 trillion in FOREX withheld by Russia and China. Why would US creditors like China and Russia withhold their combined 5 Trillion USD in FOREX reserves if they notice that USD is losing its value? They might consider dumping their FOREX into international markets before USD devalues any further.
My forecast about China dumping US treasuries has started to come true in lieu of Fed’s decision next week “Whether or whether not to raise the benchmark interest rates”. Here is the article on CNN Money “China is dumping U.S. Debt“, which states that China is dumping its US treasuries because it is in dire need of cash. I would disagree with that analysis but I would say that China has realized that it is time to dump U.S. Debt as it has become totally unsustainable. Now, How would the U.S. finance its twin deficits if China will not sponsor its debt?
The way China built its reserves is by managing an exchange rate with the U.S. so that it would avoid devaluation of USD even though China had a trade surplus with US. You can read my published article about the same ‘Federal Reserve Help Needed to Help OEMs Reduce U.S. Trade Deficits’.
If US does not have any country to sponsor its debt, then it cannot run trade and budget deficits without devaluation of USD. Hence, this move by China to dump U.S. debt is a strategic move to not just save Chinese economy but also create a panic in the US economy. While, I had expected that Fed would gradually start hiking benchmark interest rates from October 2014 and also bring about the reforms to eliminate its twin deficits, not only has the Fed not done anything to address about the twin deficits, because of which its benchmark interest rates are so low for so long, but it is highly unlikely that US would raise its benchmark interest rates in next week’s FOMC meeting.
Now, Will the Fed raise its rates in October 2015 as mentioned by Deutsche Bank U.S Economist on CNBC ? The benchmark interest rates of the Fed are low since 2006. The rates have been low because of the financial meltdown of US economy in 2008 and over 12+ trillion USD that has been printed to finance its deficits has not reached into the economy by creating jobs. It has gone into the coffers of extremely wealthy bankers and corporations but it has not helped the US economy. Now, If Fed raises the benchmark rates; the dumping of US treasuries by China, could possibility get invested into the US but Fed’s decision would certainly trigger a panic in developing economies.
Since, Most corporations in US today depend on their market share in developing countries due to growing poverty in United States, any panic in developing countries would crash the corporate profits of same MNCs. Hence, It is very unlikely that with so much doom on horizon, the FOMC would take the bold decision to finally raise its benchmark interest rates for first time since 2006. However, As I forecasted back in March 2015 in my article “Macroeconomic Cycles & Business Models“, by end of October 2015 US stock markets would crash due to Macroeconomic Cycles of Nature irrespective of the Fed’s decision next week. I mentioned,
As I have explained, since 1980s the way US has been solving its macroeconomic problems is not by means of fixing its monetary policy to bring back free markets to keep wages on track with productivity. The real fixes to our economic problems are being delayed by excessive monetary printing. Hence, the coming economic crash of 2015 will most likely be a complete collapse of crony capitalism. No matter how much the Fed delays its hiking bench mark interest rates, the macroeconomic cycles cannot be controlled by central banks.
Hence, Please do not expect any hike in Fed’s Bench mark Interest rates until a collapse of US economy by end of October 2015. Starting November 2015 until March 2016, US economy will not grow due to a severe winter. Hence, I forecast that after March 2016, A New Golden Age would start in United States and it will sow the seeds for its next Presidential elections bringing real economic changes in America. I would like Americans to consider Senator Elizabeth Warren to be unanimously elected in 2016 as a president. I also forecast that the following three books would define the coming economic changes in America as the country looks forward to innovative new ideas in order to revive its economy and restore prosperity.