The FOMC raised its target federal funds rate this week by 75 basis points.  This is being done by the Federal Reserve to fight the inflation that it created in the first place.

While the Fed is indicating that it could slow down in its tightening depending on economic data, the fact remains that price inflation is still high, even according to the government’s own statistics.

I have said that the only things that will get the Fed to reverse course before inflation is under control is for bank failures or major turmoil in the bond market.  The Fed is not going to reverse course just because we are in a recession or the stock market is dropping.

If and when we enter a recession, it is possible that prices will come down.  Or perhaps more accurately, prices will go up at a slower pace.

But what happens if we enter a hard recession with price inflation still raging at 7 or 8 percent?

The Fed has not faced a situation like this since the 1970s and early 1980s.  We know how that one went.  The Fed, under Paul Volcker, engaged in a tight money policy with high interest rates in order to get price inflation under control.  It also drove the economy into multiple recessions.

While the official inflation numbers were higher at that time, so were interest rates.  Right now, we have a situation of very negative real interest rates, even after the Fed hikes.  Price inflation is still vastly exceeding long-term and short-term rates.

Another difference between now and the late 1970s is that the debt is far worse.  The official debt, not including unfunded liabilities, sits at $31 trillion.  As interest rates go higher and some of this debt is rolled over into higher interest debt, the interest payments for the government (i.e., the American taxpayer) will surge.

We also have about 14 years of extremely loose monetary policy.  The Fed exploded the money supply after the 2008 financial crisis hit, but we never had the consequences of significantly higher consumer prices until recently.  So we have a lot of misallocated resources that are going to correct at some point.

On top of this, the yield curve is inverted.  The 3-month yield is now higher than the 10-year yield.  The 2-year yield has been higher than the 10-year yield for several months, and it now sits over 50 basis points higher.

So the biggest recession indicator has been triggered, and the Fed is raising rates and reducing its balance sheet with this going on.  There is little doubt at this point that there will be a recession in 2023.

After an incredibly strong month for the Dow in October, stocks resumed their fall this week.  We should expect a lot of volatility going forward, but I think the damage to stocks has only begun.

The Everything Bubble has reached its peak and has started to fall.  It may be a fall for the ages.  It is also incredible because just about every asset class has seen a bubble at once.  The only major exception I can think of is precious metals.

This means that your wealth is not really safe anywhere.  The best you can do is diversify and stay out of debt.  I still recommend a permanent portfolio setup, although even that will see its down days.

The name of the game right now is wealth preservation.  If you have something saved up, try to keep it.

I think there will be opportunities to make money down the road when everything gets beaten down.  I’m sure there really will be bargains when there is blood in the streets.

If the government resumes creating money any time soon, then that could change the whole game.  But I don’t expect it in the next several months unless major financial institutions get into trouble.

For now, prepare for a major recession ahead.  If the Fed reverses course, then it will be time to look for more speculations in mining stocks and other assets.