The Federal Reserve chair, Jerome Powell, is not heeding the above warning during the recent Jackson Hole Economic Symposium. Chairman Powell has a penchant for reacting too slowly to the specter of past inflation, then escalating interest rates with extreme measures that undoubtedly will lead to a severe recession. His current assessment of the prospect of a soft landing for the US economy is, in my view, overly optimistic. Stock investors, to their own detriment, have relied too heavily on his words. According to my analysis of Mr. Powell’s Bazi, his luck is going to dwindle further in 2023, leading me to conclude that the probability of a severe recession is virtually one hundred percent despite all his valiant efforts to tame inflation. Why? Because he is not properly addressing the root cause. Consider the following factors:
1. Because of the war in Ukraine, European nations face an unprecedented rise in energy costs that will aggravate inflationary pressures, incapacitate industrial production, and lead to their economic collapse. The concomitant dire global impact will unwind the US economy, and multinational corporations will experience unprecedented hard times, as FedEx Corporation has already forewarned.
2. Rapidly increased interest rates will inevitably bring down the housing sector because fewer and fewer families would be able to afford the spike in mortgage rates. Home values will drop precipitously. Consumers, suddenly feeling poorer, will hold back on spending, which will erode corporate earnings and ruin equity markets.
3. When stock prices drop, all investment portfolios shrink, including those in retirement accounts such as 401(k) plans, and consumer sentiment will grow even more negative—and the vicious cycle continues.
4. Poor corporate performance will result in layoffs, aggravating unemployment and deepening the recession.
The rapid rise in interest rates is no solution to the current economic plight and looming economic disaster. With its current national debt close to $30 trillion and its population around 330 million, the United States’ debt burden on each citizen is almost $90,000. A family of four will have to shoulder close to $360,000 of the national debt, much more so than many home mortgages, which a mere fraction of the population can currently afford. Rising interest rates will cause interest payments on the national debt alone to go up exponentially. In other words, we have become our own loan sharks! The magnitude of debt is unsustainable.
No one can beat America—except Americans.