It was the Federal Reserve’s biggest policy error in history…
In 1928 the Fed started raising interest rates to curb speculation in the stock market. By 1929 rates hit 6%.
Soon after, the market crashed. Many economists view the crash as the start of the Great Depression.
While the Fed cut rates into the 1930s, they never went lower than 2%.
At the time, deflation was running around of 2–4% annually. That kept real rates in a 4–6% range. As a result, the money supply sharply dropped.
(Inflation is the increase in prices of goods and services. Deflation is the decrease in the prices of goods and services. While falling prices are good for consumers, companies respond by slowing down production, which leads to layoffs and salary reductions.)
In his 1963 classic, A Monetary History of the United States, legendary economist and Nobel Prize laureate Milton Friedman wrote that high real rates prolonged the Great Depression.
According to Friedman, it was the Fed’s biggest policy error in history.
As Friedman stated succinctly in an interview in 2000, “…From ’29 to ’32 or ’33, the Federal Reserve permitted or forced the stock of money to go down by a third. For every $100 in existence in money – I’m now talking about bank deposits and currency in your pocket – for every $100 in existence in 1929, there were only $67 in 1933.”
The Fed didn’t publicly acknowledge Friedman’s assessment was correct until his 90th birthday in 2002. (He passed away in 2006.)
That’s when Ben Bernanke told Friedman, “You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
In 2002, Bernanke was a member of the Fed’s board of governors. Four years later, he become the chair of the central bank.
Ironically, as Fed chair Bernanke oversaw the Great Recession – the greatest economic collapse since the 1929 crash.
So much for “we won’t do it again.”
Here’s why I’m telling you this…
In the coming days, I believe the Fed will announce a new, radical plan to remake the U.S. dollar.
In my view, it could be worse than its decision to raise rates in 1928 – and let the money supply collapse in the 1930s.
Below I’ll show you two ways to protect yourself and your loved ones from this power grab.
Before I get to them, let me tell you why you should never trust the Fed.
Why You Shouldn’t Trust the Fed
The Federal Reserve Act of 1913 established the Fed as the United States central bank. Its original mandate was to keep prices stable.
By its own data, the Fed failed miserably at that core goal.
As you can see, $1 in 1913 is worth close to three cents today. That means over the past 110 years, Americans have seen their purchasing power decline 97%.
I believe this is primarily due to Fed policy blunders over the years.
As I mentioned above, we saw that in the 1930s. As Friedman wrote, keeping real interest rates high prolonged the Great Depression. It kept the cost of money high, discouraging spending and borrowing.
We saw another Fed policy blunder following the banking crisis in 2008, when Bernanke flooded the economy with what he called “helicopter money.”
The government didn’t actually dump any physical cash from helicopters. Instead, the Fed bought distressed assets from banks, and banks received a deposit from the Fed.
No creation of physical cash was necessary. The Fed called it “open market operations,” or OMOs.
But those newly created deposits largely sat on bank balance sheets, or with the Fed as “excess reserves.”
That avoided inflationary pain, as no new money was getting off of Wall Street and onto Main Street.
Since the money was held as reserves while banks worked through the write-downs from the Great Recession, it stifled economic growth and recovery.
Banks didn’t see any need to undertake loans, as that was riskier than earning a tiny but risk-free yield leaving excess cash with the Fed.
In contrast, consider the stimulus spending during the pandemic – a lot of money hit Main Street, over $5 trillion… of which $1.8 trillion was the equivalent of helicopter money that went directly to households.
We’re still contending with the inflation from all that money creation today.
Most recently, in 2021–22, Fed Chair Jerome Powell allowed inflation to soar to 40-year highs nearing 10%, all while claiming inflation was “transitory.”
Then in a stunning about-face, Powell implemented the fastest interest rate hike cycle in 40 years.
The market fell as much as 22% during this rate-hike period.
That’s whipsawed investors, created a challenging environment for businesses to plan for the long term, and created inflation that harms lower-income workers over asset owners.
That’s a recipe for rising economic inequality. Just consider your grocery bill…
In 2020, food prices rose an average of 3.9%. In 2021, they rose 6.3%. And in 2022, they soared 10.4%.
Even if food prices stop rising, they’re up over 20% from their pre-pandemic levels.
As you can see, the Fed has made numerous policy blunders over the years. But its next radical plan could be the worse of them all.
The Launching Pad for the Digital Dollar
On July 26 the Fed is starting a new program. In time it could become known as the greatest threat to Americans’ financial freedom in history.
It’s called FedNow. It’s a payment system designed for instant settlement.
On paper, it sounds like a technological improvement over traditional payment networks.
The current global financially payment system is a dinosaur. It can take days for a check to clear. Wire transfers can take up to a week… if they don’t get lost.
FedNow will allow you to settle those types of transactions in hours instead of days.
Those are the benefits… But FedNow could also be used as a Trojan horse.
It creates the infrastructure for the government to issue a central bank digital currency (CBDC). In other words, a “digital dollar.”
A CBDC is the digital version of a country’s currency. It’s controlled by its central bank.
It uses a ledger system to keep track of every single transaction. And it’s programmable, so the value of it could be changed at any time.
Right now, 110 countries are working on a CBDC, including the United States. And three countries are already using a CBDC, with the biggest being the pilot program out of China.
Like any tool, a digital dollar isn’t good or bad on its own. It depends on who wields it.
A digital dollar could track every single transaction you make. And with cash eliminated, there would be no place to hide…
If history is any guide, giving the Fed another tool when it doesn’t even use its existing ones responsibly could prove a threat to your financial freedom.
That’s why it’s important to diversify outside of assets that could get sucked into a CBDC.
That includes allocating some wealth to decentralized cryptocurrencies like bitcoin.
Bitcoin has some key differences from a CBDC. It’s no one else’s liability. As long as you custody your own bitcoin, it’s free of counterparty risk.
It’s a deflationary asset, so no one can indiscriminately print more into existence. And no central authority can tamper with it.
That’s one area where I’m buying now, with a daily buy to dollar-cost average.
But I’m also going old-school with physical gold and silver.
While the dollar has lost 97% of its value on the Fed’s watch, gold has gone from $20 per ounce to $1,900. That’s a 95x gain. It’s done a solid job of protecting purchasing power.
That’s why I’m adding some precious metals to my holdings as a defensive move.
So if you’re looking for ways to opt some of your wealth out of a potential digital dollar regime, bitcoin and precious metals can do that.
Remember, all great change brings great profit opportunity, too. This seismic shift to a digital dollar is no different.
There are multiple ways for you to profit from the potential rollout of the digital dollar. That’s why Teeka Tiwari put together a new playbook to show you how.
In it, you’ll learn:
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Step-by-step instructions to securely buy and store your bitcoin.
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The name of a company set to profit from the digital dollar trend.
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The name of a crypto project also set to profit from this trend.
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And a secret way to 10x your money on gold.
Good investing,
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Andrew Packer
Analyst, Palm Beach Daily