Your Money Is About To Be Worth A Lot Less
In a Nutshell
The video claims the Fed is engineering a covert easing cycle by ditching forward guidance, changing inflation metrics, and pushing SLR exemptions so banks—not the Fed—can buy Treasuries, effectively laundering QE while pretending to tighten. This scheme is blocked by persistent inflation and a flattening yield curve, with success hinging on an Iran oil deal that would crash energy prices and give the Fed cover to cut rates. Without that deal, $8T in Treasury refinancing, leveraged hedge-fund buyers, and a new Fed chair could trigger a sharp market drop.
These notes were generated by AI and may contain inaccuracies.
A few days ago, the United States and Iran signed a deal to end one of the most destructive wars in decades. Within days, it fell apart. Israel continued bombing Lebanon, the agreement broke, and Iran shut the Strait of Hormuz again, meaning no more oil for the world.
The crisis returned. While many attribute this to Israel and Netanyahu, a more encompassing theory suggests an internal conflict in the profit-making machine between the military-industrial complex and the technological industrial complex. The military's forever war model is being shut down to make room for the technological industrial complex's AI buildout, which requires stability instead of war.
This theory explains why people who would never have criticized Israel are now doing so. Trump stated: "Without the United States, there would be no Israel. Israel would have been blown up a long time ago had I not gotten involved. Israel's fighting Hezbollah too long and too many people are being killed. And you don't have to knock down an apartment house every time you're looking for somebody."
Kevin Worsh kept interest rates steady, matching the CME FedWatch Tool prediction of over a 97% chance rates would remain unchanged. The S&P 500 closed down 1.2%.
Worsh announced he is dropping forward guidance, refusing to submit his own forecast. He stated: "I however have refrained from offering any projections of my own consistent with my long-held views on the SCP at least as currently structured." He also launched five task forces to review how the Fed talks, measures the economy, and inflation.
The third task force on data will evaluate new information sources and consider methodological changes to improve data gathering, aiming to provide policymakers with more accurate, relevant, contemporaneous, and actionable information.
After a report showed inflation rose to 4.2%, the highest level in three years, Trump said "I love inflation." This is because inflation can be blamed on the Iran war and oil prices rather than policy.
Worsh held rates steady to earn credibility for lowering rates later. If he had lowered rates immediately, the bond market would have revolted, branding him a puppet with no independence. By appearing tough on inflation now, he gains credibility to lower rates later when oil comes down, claiming "the data told me to."
Worsh appears hawkish today so he can be dovish later without bond market backlash.
The official inflation data using CPI and PCE shows 4.2% inflation, with the Fed predicting 3.6% by year-end. A second story shows oil down nearly 40% from highs, suggesting inflation will crater if the Iran deal is signed.
Whoever controls the data controls policy. The Fed is considering changing how they measure inflation using the trimmed mean PCE, removing outliers like oil. This allows them to choose the data story that justifies lowering rates and quantitative easing.
Worsh is also removing the dot plot, a survey of what other central bankers want to do with interest rates. The old data, though broken, was public and verifiable. The new system makes the number whatever they decide it to be.
The supplemental leverage ratio (SLR) limits how much a bank can hold relative to its own money, including treasury bonds. During COVID in 2020, the Fed temporarily exempted treasuries from this rule for about a year. Banks piled hundreds of billions into treasuries. When the exemption expired in March 2021, the bond market became choppy.
Worsh wants to shrink the Fed's balance sheet while deregulating banks by returning the treasury SLR exemption. Banks will then buy bonds with leverage. The net effect on the bond market is the same as if the Fed bought the bonds itself—quantitative easing laundered through the commercial banking system.
When asked about printing money, they can point to a shrinking balance sheet and claim they are tightening, while money still gets printed and the dollar buys less.
The bond market rejected Worsh's plan. The 2-year Treasury bond rose to approximately 4.2%, while the 30-year Treasury rate barely moved. This flattening of the yield curve signals investors believe the Fed will keep rates higher for longer because inflation is worse than stated, and nine Fed members want to increase rates.
Worsh needs a steeper yield curve for banks to profit from the gap between short and long-term rates. Dropping forward guidance increases uncertainty, causing investors to demand a risk premium.
The US government must refinance approximately $8 trillion in debt over the next year. Foreign central banks have stopped buying Treasury bonds since around 2014. Highly leveraged hedge funds, including funds based in the Cayman Islands that bought 37% of new government notes and bonds issued since 2022, are now the primary buyers.
When stocks fall, these hedge funds face margin calls and sell treasuries. This creates simultaneous stock and bond declines with rising yields, removing the traditional safety net investors relied upon.
Oil is the deciding factor. High oil prices prevent Worsh from having an excuse to lower rates. Currently, oil is falling because the market believes the Iran deal will be signed. Trump stated: "If we keep bombing, those ships won't be going. And you're talking about 500-600-700 million dollars a day. It's a lot of money... Also, we run out of reserves in about four weeks."
Trump admitted the deal's purpose is getting oil flowing before the economy is damaged, not winning a war. The SPR would run out in under 80 days. Even if a deal is signed, 500 ships are stuck in the region. Insurance companies and shipping giants remain reluctant. Analysts estimate 2 to 3 months to restore normal traffic.
Historical data from Barclays and Bloomberg shows the S&P 500 falls on average 12% in the first three months after a new Fed chair takes over. Alan Greenspan's appointment saw a 33% drop. Powell, Yellen, and Bernanke saw smaller drops as continuity candidates. Larger changes produced larger drops.
By October or November, the market could be down significantly, unless the Iran deal succeeds, new data shows cooling inflation, and money printing begins.
According to Luke Groman from FFTT, five signs indicate the plan is working: a weaker dollar, higher stocks, lower 10-year yields, higher gold prices, and higher Bitcoin prices.
On Wednesday, all five signs flashed the opposite: dollar up, stocks down, 10-year Treasury yields up, gold down, and Bitcoin down, indicating the plan is failing at least temporarily.
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