- Leonard Cohen
So, by now everybody knows the Fed cut interest rates by 50 basis points (wall-street speak for 0.5%) which was expected even though none of the metrics normally used to determine rate levels remotely justified the cut. So why did everyone expect something so unusual? Considering how manipulated the official state numbers have been regarding inflation, unemployment & GDP I think I know what the issue is:
Most "analysts" expected the unprecedented half-point cut which the Fed usually only reserves for super-bad times because, election! More likely explanation: The Fed-whisperers at the major banks were 'splainin to Powell that it's either cut now or we're burnt toast. That explains all the pathetically weak reasonings: "We're doing great! It's just that we, like, need to protect all that success!!" Puh-leeease!
"If there was a strong case for a 50 bps cut, Powell did not make it at his press conference. He repeatedly stressed that the US economy was strong, but we should see the strong move as a commitment to keep the economy strong.
I'm not the only one to notice either:
"During the press conference, Powell had trouble clearly explaining the reason for the large cut, because he did not want to admit that this ‘recalibration’ was needed because the FOMC had fallen behind the curve. Meanwhile, the large cut seemed counterintuitive to the repeated claim that the economy was strong."
Kyle Bass said it best:
"The @federalreserve ‘s large rate cut can be explained by only two scenarios:
1. Jerome Powell and his cadre of elite economists see the U.S. economy falling off a cliff…or
2. It’s a couple of weeks before early voting"
The Fed Discount Rate is still at 4.83% and Prime Rate is over 7% so let's not get too excited. That also means (to me) that there will probably be another cut before November which will bring the rate down further. Lending will be less costly but inflation will be a problem as the new debt seeps into the economy. The problem small business owners face is that lower rate policies are being once again introduced but the actual, real, not-manipulated economy sucks!
"The fact of the matter is that many everyday Americans are struggling. Inflation over the last several years has hit grocery bills and utility prices, not to mention other necessities in our modern world, so hard that many Americans have to decide between eating lunch or paying the electric bill.
To make matters worse (and more stressful), job prospects in the current economy aren’t rosy. Sam Sutton noted for Politico:
The unemployment rate is meaningfully above where it was last year. Rising prices and higher interest rates have put homeownership out of reach for many Americans. A growing number of consumers now expect to miss credit card or auto loan payments. And high rates have slowed the pace of corporate mergers and acquisitions, potentially impeding economic activity.
That’s right, Americans are already having difficulty being able to buy groceries and keep roofs over their families’ heads, but what does the Fed do? Cut interest rates"
All governments lie and fudge the numbers to look better but objectively speaking, all the government data reported in the last 4 years is owned by the Biden administration. If we assume (correctly) that government agencies produce data-to-order depending on who is in office then I believe it's safe to assume the official data reported will change depending on who wins.
So, what happens when the manipulations disappear?
"Some examples of this rigging include:
Biden’s steady sale of US strategic oil reserves in order to drive down energy and gas prices, thereby artificially reducing CPI (official monthly inflation numbers). By June of this year Biden had sold off at least 50% of the nation’s emergency oil supply just to keep CPI down a few points. Keep in mind, bringing down the CPI does nothing to cut the real inflation that has already accumulated in necessities (30%-50% higher prices depending on the product or service).
Then there’s the manipulation of BLS unemployment data to show millions of new jobs that don’t actually exist. After it was announced that Biden was no longer the Democratic candidate, suddenly the US Payroll has been revised down by over 818,000, likely with more revisions to come. Meaning, Bidenomics was being fluffed with fake job creation.
An even greater concern is the fact that all new jobs created for the past several years have been going to illegal aliens, not legal citizens. In fact, since October of 2019 native-born US workers have lost over 1.4 million jobs. Over the same period, migrants illegally residing in the US have gained 3 million jobs. The new narrative is that this is a good thing; they claim that the US needs illegal immigration and open borders in order to support the jobs market and “bring down inflation.
Finally, rising GDP is often cited as a key indicator of a vibrant economy, but what the “experts” rarely mention is that GDP is rigged by the inclusion of government spending. The more federal and state governments tax, borrow and spend, the higher GDP goes. Currently, government spending accounts for at least 36% of GDP (officially) in the US."
My position is that most of the economic dislocation coming our way is already "baked in the cake' so to speak, and that the actual condition we are currently experiencing is being actively hidden by media and government reporting agencies in order to conceal the true numbers and to improve the electoral chances of the current administration. I also believe that if the electoral outcome does not suit the unelected bureaucracy, then the manipulations will be removed so that the new (Trump) administration will be burdened with all the problems the data wizards protected the current administration from dealing with. It would also be an opportunity to stigmatize anyone supporting the new administration (MAGA supporters) for ushering in economic calamity by voting their conscience when, in fact, it was a mess all along.
But what do I know?
For now, lower interest rates are good for any business owner looking for funding. It will also make housing a bit more affordable even though we will quickly eclipse those gains with extremely inflated prices for everything. There are many signs that things aren't nearly as rosy as the official data says they are:
"This is absolutely stunning... Office buildings totaling 633k sq ft in downtown Minneapolis just sold for $6M or a shocking $10 per sq ft The price represents a 91% 'discount' to what the seller bought the towers for - $74M in 2019!The meltdown in class B/C office properties across the US is beyond wild so stay tuned for more updates just like this..."
Here in business lending world the demand side is increasing and the new cut will help fund more requests -
here's a current recap of what working capital programs are available to businesses:
SBA term loan - 10 year terms, monthly payments. APR is Prime+2.5% (the recent cut will improve APR)
MCA - Up to $10MM unsecured cash tied to revenues - Factor rates 1.22-1.44
LOI - Revolving line up to $5MM, 1.8-3.2 points per month for capital used - weekly payments.
CRE - With the exception of office buildings, just about everything else is still getting funded for commercial real estate. Rates 7.4% - 8.75+%
Cheers!