Commentary: The Fed’s 50 basis point interest rate cut is a dangerous financial move

[New Sancai Compilation First Edition] Although most of the media and most Americans are celebrating the recent 50 basis point interest rate cut announced by the Federal Reserve, this is completely the opposite of the reaction we should have.

This is the financial equivalent of junk food. Of course, this will bring about some good news cycles and people will be happy that their rates are temporarily relieved, but what happens after the excitement wears off?

In short, we have more problems that should be solved. This is again the proverbial "kick the can down the road." And the results of this are never good.

It's further fueling inflation, which is already much higher than officials admit. Most Americans don't know that the government's measure of inflation has changed over the years, and that the official data is essentially meaningless because of the way it's calculated today.

Worse, it's an act of desperation. It's not based on sound financial principles - it's just a Hail Mary pass for Fed Chairman Powell to hope to create positive public sentiment ahead of the November election.

This could be the final nail in the coffin of our economy. The "market" is bigger than the Fed and has the final say.

Anyone not yet in the top 20% of Americans in terms of income and assets will be hurt financially, while those at the top benefit from continued easy monetary policy and gross domestic product (GDP) growth largely based on government Job expansion and continued deficit spending. It's like a family living on a credit card and feeling good about their lifestyle...until the debt comes due.

Don’t get me wrong – I’m a big fan of free markets and think we should encourage substantial profits from our work, but not when it’s clearly at the expense of others. While the free market is not a zero-sum game, it can behave like one when too much government intervention occurs. There is no doubt that our government has absolutely intervened to the point of reducing our economy to rubble.

To sum up, inflation driven by government monetary policies has caused the US dollar to lose more than 88% of its purchasing power. Specifically, it involves manipulating interest rates and the money supply.

Oh, and here’s the thing — the Fed, the entity that sets and enforces these policies, isn’t even a government agency. This is a private organization where we have zero oversight.

This rate cut is purely a political move to keep things afloat long enough to get through the next election. This is why the Fed is cutting interest rates despite claims that inflation has fallen and that we are not in a recession. This isn't the first time we've seen this happen. Back in 2007, the Federal Reserve cut interest rates on September 18, causing the stock market to crash. Over the next 372 days, the S&P 500 fell 54% and the housing market collapsed. Ten of the past 14 rate cuts by the Federal Reserve have resulted in recessions.

The bigger problem is that underlying economic conditions are much worse today than they were in 2007, so when a correction occurs, it will be worse than the last time we saw it.

While the cut is intended to lower interest rates across the board, it may actually have the opposite effect because long-term rates, such as mortgage rates, are based on the 10-year Treasury yield, which is rising.

In other words, buckle up because things are about to get pretty bumpy. Our already high inflation rates will spike over the next 3-6 months, which will have a ripple effect that affects every aspect of our economy. As costs continue to rise due to inflation, more businesses will struggle, leading to layoffs, further exacerbating the problem as it leads to reduced economic activity.

Consumers will have less money to spend and understandably will become more cautious about how they spend their money. It doesn’t take long for the situation to turn into a vicious cycle that can take years to recover from.

As this unfolds, government officials will claim they had no idea this was coming and that no one could have seen it coming, but you'll know better.

This is just a political move to further resolve the issue, and at this point, the Fed is in a no-win situation. Cutting interest rates will cause inflation, but raising rates at this point will destroy the economy almost overnight, so there's really no way out. Plus, this all happens at a time when our national debt is at an all-time high—so high, in fact, that interest payments alone now exceed our entire military budget.

Expect huge fluctuations in the coming years. If you're prepared and make the right decisions, you may emerge from a difficult situation in a stronger financial position and change the trajectory of your family for generations to come.

(Author: David Phelps)

(Compiled by: Wang Jimin)

(Editor: Jiang Qiming)

(Source of the article: Compiled and published by New Sancai)