As we've discussed, America is not a real country, it's just the latest headquarters of White Empire. 'American' people have nothing to do with American policy, America is run for the money, by the money and the only policy is monetary policy.

This monetary policy is decided by a conclave of unelected banker (wankers) who just met to decide interest rates. If white smoke blows out their ass, the rich get free money, and if black smoke billows, the poor starve. In the end they raised rates by 0.25%, which angered the unholy American emperor, but even he has to deal with this financial popery. You can tell a lot about people by what they worship, and these people worship no prophet, only profit.

Once you understand that the White Empire is run not by humans but by corporations, you can understand that Corporate AI* governs the place, and has for centuries. Some form of corporation has had legal personhood for millenia, legally for centuries, and politically they have speech rights in America, including buying elections. The question is not whether these artificial beings are intelligent but whether we are.

If you looked inside this Corporate AI's brain, it's not very complicated, it's an algorithm more akin to viruses than 'higher' lifeforms (no shade on viruses, quite impressive). If you looked inside any Central Banker's brain what you'd see is some approximation of the Homer Simpson monkey-with-cymbals meme, clanging symbols together. For example this, from John Taylor in 1993: r = p + .5y + .5(p - 2) + 2.

Of course this is all bullshit, the idea that you can fit an economy into such a simplistic algorithm and that a Central Bank is the only central planning you need in your economy. But those who worship no prophet but profit gather to plot this number, and it seems to work for them. These Central Bankers are like any olde high priests reading entrails and saying give us your grain peasantry, but there must appear to be some method to the madness, otherwise it appears entirely mad and no one believes. So they follow some approximation of the Taylor Rule, which has predictive power as follows,

However, just to highlight that this is bullshit, since 1980, you could also predict whether rates would go up or down based on the height of the human being sitting in the Federal Reserve Chair. This heightonomics is unbeaten, indeed, Warsh is just a little bit taller than Powell, and raised rates a little bit above.

Let's leave that aside now and pretend that these entrails mean anything more than rich corporations feeding on the blood of living beings. Let us venture into the belly of the beast, and read the entrails ourselves.

Let us adjust the algorithm a bit (fine, it's all bullshit) using the PhD level trolling of Iranian Parliament Speaker (and Bloomberg whisperer) MB Ghalibaf. He references the Taylor Rule, saying,

Straits Taylor Rule:

i = r* + π* + 1.5(π−π*) + 0.5(y−y*) + α(SOH−SOH*) + β(BEM−BEM*),

α,β > 0

This is a modified version of the 1993 Taylor Equation, based on the gap between actual and targeted inflation (π−π*) and actual and targeted GDP growth (y−y*). The idea is that the Fed sets an interest rate (for its confederates) called i. That interest rate displays a certain sensitivity to inflation (α, canonically set at 0.5, but 1.5 in this case) and GDP (β, 0.5 in both cases).

Ghalibaf tweaks those the weights to imply "inflation targeting with a buffer against supply-side shocks," (according to my local Qwen). This seems appropriate. Diesel prices are skyrocketing, meaning food and all products will follow, so the Fed would be targeting inflation, ie giving it a higher weight (α=1.5). Since American GDP is literally artificial now, the Fed can leave that Ponzi to run as usual (β=0.5). That's the weights, but wait...

This is the Straits Taylor Rule and Ghalibaf adds two more variables. The Strait of Hormuz (SOH) and Bab el Mandeb (BEM). α(SOH−SOH*) + β(BEM−BEM*). He doesn't specify their coefficients, but says they're more than zero (α,β > 0), ie, they count. This is a straightforward addition, so whatever the Fed was thinking, add a two ton guerrilla on top. That would mean the current rate of 3.75-4% needs to be plus-plus. More realistically 4-4.5%, which still isn't enough to account for 20% of global supply blowing up. Military problems cannot be solves with monetary plumbing, but that doesn't stop them from trying.

As Ghalibaf adds,

Let’s see if a hike could open SOH or produce a single barrel 😄

You can’t 25bp a chokepoint and r* isn’t neutral. It’s SOH risk premium, and We set it.

What he's saying is that any rate hike from America won't open the Strait of Hormuz or unbomb a single pumping station. A 0.25% interest rate hike (25bp) in Washington has no impact on physical reality in the Persian Gulf. Monetary policy cannot win where military policy has lost.

Ghalibaf is also saying that the 'natural' federal funds rate (r*) will have to answer to nature, which is healing after centuries of colonization. The natives have taken control of the Strait of Hormuz after 500 years and either Iran can sell oil freely or no one can. This is the SOH risk premium, and Iran sets it, not some banking cartel in America.

Then Ghalibaf concludes with

Stay unanchored !

This doesn't refer to ships but some more economic bullshit called anchored expectations. This means that if people believe that the Central Bank will somehow hit the inflation target (currently 2%), that makes it real. People will adjust their behavior (wages, pricing) based on trust in the economic priesthood. Like someone having faith because they sacrificed jobs or whatever. These are all complicated ways rich people talk to each other without looking out the window, or seemingly going to a grocery store or pumping gas.

The real reality is that US gasoline prices are up 27%, and diesel prices are up 40% (!) since last year. The US uses some bullshit inflation measures, but the correlation between gold and the price of a cow has been stable for millenia, and the price of ground beef (RIP) is up 10%. None of these numbers are 2% and people know it, however much smoke central bankers try to blow up their asses. Black smoke, white smoke, it doesn't matter what billows out of the Fed this week. Shit is literally on fire and people know it.

What Should/Will Interest Rates Be?

So what should interest rates actually be? If you're interested, I'll go through a Cleveland Fed worksheet for paying subscribers. Otherwise, to infinity and beyond!