COTW: The Recession to Come

Look at these charts which explain what to expect in the coming recession:

Clearly seen here is the close relationship between modern economic recessions and the federal funds actions of the private Federal Reserve.  It uses a steep reduction in the federal funds rate (blue) as a means of jump starting economic activity to pull it out of recession (red).  In fact up until now, short term rate reduction is the only recession fighting tool the Fed has.  What is different now is that it is no longer has room to drop the rate to near zero since it has been in that status from 2008 until 2016. (right end of chart).  The bank has lost two thirds of its interest rate margin compared to previous recessions (left end of the chart).  On average the bank has reduced the federal funds rate by 7.25% for each previous recession.  Now it is down to only 26% of the interest rate spread used to stimulate the economy in recession.   No investor or bank is going to stand for negative interest rates. Who in their right mind would want to pay a debtor to borrow their capital?

So what ammunition will the Fed use to shoot down the next recession?  The answer in one word is: an experiment.  No one knows for sure if this experiment will work.  One thing for sure is that it will enrich the already rich: bond traders and insiders who know now what is coming.  The private central bank's first step would be a massive market intervention in the form of more fiat money printing, euphemistically know as QE, or qualitative easing. That massive expansion of the money supply will be piled on the existing outstanding balance of the Fed's asset sheet exploded to ward off Depression 2.0 in 2008. Here is that chart:

charts: D. Amerman

The Fed intends to use the trillions of new money it prints to drive up long and medium term bond prices, and since yields are inversely related to price, drive down bond interest rates (yields) to new lows to make up for the lack of firepower in short term bond rates.  Of course using the free money to jack up bond prices will make traders and investors even more filthy rich, especially if they know what is coming--and they do.  This chart shows that to be the case:

Dan Amerman writing at Market Oracle.uk.com says, "The plan is known and investing for the execution of that plan is enormously popular among sophisticated institutional investors, even while most of the millions of average individual investors seem to have no idea of what is happening....they understand neither the gifts nor the risks that will be coming with this new grand experiment, but instead continue to invest for a world that is long gone."  So, what else is new?