Jerome R. Corsi
The Federal Reserve’s loss of systemic control over the U.S. economy has been brought to a head by the coronavirus (CoVID-2019) crisis,” warns John Williams, economist John Williams, the author of the Internet website ShadowStats.com that aims to provide an honest economic estimate of today’s politically correct understating of federal budget deficits and the true estimate of the federal government’s negative net worth.
“Unfolding fears of a coronavirus Pandemic have exacerbated otherwise mounting fears of a U.S. recession, and have brought to a head issues with the long-range systemic instabilities from the Federal Reserve’s 2007 – 2008 bailout the banking system, again as reflected the flight from the U.S. dollar,” Williams cautions in his ShadowStats.com newsletter.
“Against the Dow Jones peak closing price on February 12th, the DJIA (Dow Jones Industrial Average) dropped 11.0% (-11.0%) through the Friday, February 28th close,” Williams noted in a ShadowStats Flash Update published on March 1, 2020. “Over the same period, gold gained 3.0%, while the Swiss Franc gained 1.4%. The more unstable the equity markets become on the downside, the more likely the relative safe-haven assets of precious metals (gold, silver, and platinum) are to offer a positive alternative, in terms of short-term volatility, as well as for longer-term stability.
“In an extraordinary attempt to contain the coronavirus’s economic fallout, the Federal Reserve slashed interest rates by 50 basis points (1/2 of 1 percent) on Tuesday as policymakers unanimously approved their biggest one-time cut – and the first emergency rate move – since the depths of the 2008 financial crisis,” the New York Times reported on March 6, 2020.
Williams sees more Federal Reserve interest rate cuts on the horizon, given that quarterly contractions in real retail sales and in the manufacturing sector took place in the Fourth Quarter of 2019, before the coronavirus impact. Williams has been critical of what he sees as the unfolding, consumer-driven economic weakness triggered by the too rapid Federal Reserve FOMC (Federal Open Market Committee) tightening and interest rate hikes in 2017 and 2018, which were never followed by adequate pullback in those rate hikes.
“With financial disruptions, turmoil and economic uncertainties in play from the coronavirus, the Federal Reserve now has the flexibility to correct some of its earlier missteps, to lower rates with whatever Coronavirus rationale it cares to use,” Williams added, signaling his concern that the Fed by tightening rates too severely in the first years of the Trump administration, is now using the coronavirus crisis as a reason to make prudent rate cuts that were justified earlier by a slowdown in the U.S. economy Williams reported extensively in 2019.
Over the past year, Williams has been increasingly critical that Wall Street and Jerome Powell, the chairman of the Federal Reserve, have claimed the consumer economy continues to boom and that the consumer is “financially healthy and happy.”
Now, Williams argues the unfolding coronavirus panic gives the Federal Reserve a headline excuse for easing interest rates without having to admit its own economic and monetary-policy malfeasance.
“As the deepening U.S. economic contraction accelerates, the more negative will become the pressure on the U.S. dollar against traditionally stronger currencies such as the Swiss Franc, the stronger will become the fight-to-safety in precious metals and the more dangerous will become the situation for domestic equity prices and stock-market stability,” Williams advises. “A rapidly weakening U.S. dollar and rallying gold and silver prices are solid signs of impaired and systematic market conditions that quickly can mutate investor concerns into actions in other markets.”