The Feds Alice In Wonderland Economy - What Happens Next?By Nick Giambruno Ask almost anyone on the street for the name of the U.S. president, and youll get a quick answer. But if you ask the same person what the Federal Reserve is, youll likely get a blank stare. They dont know partly due to the institutions deliberately obscure name that the Fed is really the third iteration of the countrys central bank. Or that the Fed manipulates the nations economic destiny by controlling the money supply. And thats just how the Fed likes it. Theyd prefer Boobus americanus not understand the king-like power they wield. By simply choosing to utter the right words, the chairman of the Fed can create or extinguish trillions of dollars of wealth both in and outside of the U.S. He holds the economic fate of billions of people in his hands. So its no shocker that investors carefully parse everything he says. They have to, if they want to be successful. Some even go as far as to analyze the almighty chairmans body language. Of course, the mainstream financial media revere the Fed. You may recall the unhealthy spectacle that occurred in 1996. Thats when Alan Greenspan, the Fed chairman at the time, spoke the now famous phrase irrational exuberance in what should have otherwise been a dull and forgettable speech. Investors heard Greenspans phrase to mean that the Fed would soon raise interest rates to slow the global economy. Its worth mentioning that Greenspan didnt actually say the Fed would raise rates. Nor did he intend to signal that. Nonetheless, the reaction was swift and panicky. U.S. markets were closed at the time, but stocks in Japan and Hong Kong dropped 3%. The German stock market fell 4%. When trading started in the U.S. market the next day, the market opened down 2%. Billions of dollars of wealth vanished in a period of 16 hours. Thats the absurd power over the global economy that the Federal Reserve gives to one human being. The words of the chairman can make or break the fortunes of anyone with a brokerage account. I almost fell out of my chair when I heard it A journalist recently asked Janet Yellen, the current chair of the Federal Reserve, if the central bank would keep interest rates at 0% forever. Her response: I cant completely rule it out. I was stunned. The deferential financial media hurried to ignore the significance of that statement. Instead, it acted the way big city police might act after making a messy arrest on a busy sidewalk. Move along folks, nothing to see here! Clearly, there was something to see. Something very important. Yellens words came amidst one of the most anticipated economic pronouncements in a generation whether the Fed would finally raise interest rates for the first time in nine years. Short-term rates have been at zero since the 2008 financial crisis. Interest rates are simply the price of borrowing money. Setting them at an artificial level is nothing other than price fixing. Not surprisingly, it has led to enormous amounts of malinvestment and other distortions in the economy. Malinvestment is the result of faulty decision-making. Any investor or business can make a mistake, but central bank manipulation of interest rates subsidizes bad, wasteful decisions. Cheap borrowing costs trick companies. It causes them to plow money into plants, equipment, and other assets that appear profitable because borrowing costs are low. Only later, when the profits dont show up, do they discover that the capital was wasted. Seven years of quantitative easing (QE) and Fed-engineered zero interest rates have drawn the U.S. and much of the world into an unsustainable Alice in Wonderland bubble economy riddled with malinvestment. The pundits had expected that, at this recent meeting, the Fed would move to raise rates just a little and give the global economy a tiny taste of sobriety. Not even that nudge materialized. Instead, the Fed sat on its hands. It kept interest rates at zero. And Janet Yellen couldnt even rule out that rates would stay at zero forever. If she cant even do that, how is she going to start a sustained series of rate hikes, as many of those same pundits now expect her to do a few months down the road? The truth is, seven years of 0% yields and successive rounds of money printing has so distorted the U.S. economy that it cant handle even the tiniest increase in interest rates. It would be the pin that pricks the biggest stock and bond market bubble in all of human history. The Fed cannot let that happen. Its clear that the Fed cant raise interest rates in any meaningful way. It would trigger a financial meltdown that would quickly force them to reverse course. The Fed might be able to get away with a token increase, but thats all. In other words, the Fed has trapped itself. Former Fed chairman Ben Bernanke admitted as much recently when he said he didnt expect rates to normalize in his lifetime. And then, we have the current chair Janet Yellen saying that rates might stay at zero forever! Yellens belief that she has the power to suppress interest rates until the end of time is a frightening sign. As powerful as the Fed is, it isnt stronger than the markets. A crisis in the markets could force rates higher even if the Fed doesnt want them to go there. And the longer the Fed tries to sustain abnormalities like QE and 0% interest rates, the more likely it is that the whole business will end with the markets crushing the Fed. And thats not even considering a collapse of the petrodollar system or China pushing the establishment of a New Silk Road in Eurasiatwo catalysts that would likely force interest rates higher. So Ill go ahead and disagree with Yellen and rule out the possibility that rates might stay at zero forever. They wont, because they cant. At the next sign of a market swoon or of a weakening economy, or with the next episode of deflationary jitters, the Fed will again ramp up the easy money. It could be another round of QE. Or the Fed could push interest rates into negative territory. If that fails, the Fed could go for the nuclear option and drop freshly printed money out of helicopters as Bernanke once infamously suggested or, more likely, into everyones bank account. Theyll do whatever it takes, no matter what the eventual damage to the dollars value. Whatever the details, one thing should be clear. This politburo of unaccountable central planners is the greatest risk to your financial wellbeing today. Its a terrifying thought that the actions of a few people at the Fed so endanger your financial security. But the facts are worse than that. Theres more to worry about than just the financial effects. The social and political implications of the Feds actions are even more dangerous. An economic depression and currency inflation (perhaps hyperinflation) are very much in the cards. These things rarely lead to anything but bigger government, less freedom, and shrinking prosperity. Sometimes they lead to much worse. Fortunately, your destiny doesnt need to be hostage to whats coming. Weve published a groundbreaking step-by-step manual that sets out the three essential measures all Americans should take right now to protect themselves and their families. These measures are easy and straightforward to implement.You just need to understand what they are and how they keep you safe. New York Timesbest-selling author Doug Casey and his team describe how you can do it all from home. And theres still time to get it done without any extraordinary cost or effort. Normally, this get-it-done manual retails for $99. But I believe its so important for you to act now to protect yourself and your family that Ive arranged for anyone who is a resident of the U.S. to get a free copy.Click here to secure your free copy. Image Credit Exactly, politicians world wide are all pawns. To people with the stupid gene, who are in the majority, he appears to be powerful, but instead is a puppet of banking cartel oligarchs. The BIS (central bank of the world) in Basel, Swit. controls all the central banks of each country dictating to them what to do and when. Retirees have put up with low interest rates now for years and had to buy stocks with div. payouts to live above SS checks, as some have small pensions or none. The ship has sailed and with open borders and influx of middle east so called refugees, this country is being trashed beyond hope. All we can do now is get into a survival mode with family and close friends. Voting or other political/patriot activities is in vain, hasnt produced results since 1946 when patriot groups formed against the UN. Gov corruption has always been an issue, and people still remain stupid. Europe is now being invaded and the killings are just ahead, they should have learned from their history of craziness. How do you get rid of that strip on the left which prevents you from reading the article? The web is getting really annoying, I think its time to go back to cable TV. Lousy spot for that strip thing! Whom controls The Fed? J E W S!!!! 