Yesterday we made a bold claim. The second American revolution is currently underway.
Except this revolution isn’t being fought on the battlefield. It’s financial in nature.
It all centers around something called the Secured Overnight Financing Rate (SOFR). SOFR (pronounced “so-fur”) is now the benchmark interest rate for dollar-denominated loans and derivatives. It was created in 2018. And it replaced the London Interbank Offered Rate (LIBOR) in January 2022.
This is an esoteric corner of the global financial system… but it’s critical to understanding what’s playing out today. Especially on the geopolitical and macroeconomic level.
Simply put, SOFR connects the dots.
When LIBOR was the benchmark rate for dollar-denominated loans, the US economy was tied to the agenda established by the power factions controlling the European Union (EU). That’s because 11 panel banks in Europe could manipulate interest rates through LIBOR, as we discussed yesterday.
With SOFR now in place, those European banks have no influence on dollar-denominated interest rates. SOFR liberated US monetary policy… and paved the way for what I’m calling the Great Reorganization.
It’s no coincidence that Federal Reserve (Fed) Chairman Jerome Powell only started raising the federal funds rate in 2022 – four years into his term. He had to wait until SOFR fully replaced LIBOR as our benchmark. Otherwise the financial interests beholden to the EU could have thwarted his efforts to raise rates by manipulating LIBOR lower.
SOFR expelled this European influence and enabled Powell to break ranks with the global central bank cartel. That’s the second American revolution. It’s happening right now.
Of course, the financial media didn’t talk about any of this. I suspect many financial analysts still don’t realize what’s going on.
As for me, it took a little while to process the significance of this dynamic. But when the United Nations (UN) proclaimed that all central banks needed to stop raising rates immediately back in October 2022… that got my attention.
The UN implied in their statement that to continue rate hikes would be imprudent and irresponsible. Their proclamation was directed at the Fed and Jerome Powell. It was a message that the European power structure did not want to see higher interest rates.
A few weeks later Powell hiked rates by another 75 basis points. How’s that for a clear response?
And Powell’s motives appear to be clear. He’s talked a lot about “normalization”. He’s also been critical of the US government’s unsustainable level of fiscal spending.
We saw last week how government spending must be cut dramatically—or else we’ll spiral head-first into a collapse of the entire dollar-based financial system. It appears to me that Powell and other prominent figures within the New York banking scene realize this also.
Obviously Congress has demonstrated no desire to rein in spending willingly. But guess what?
Normalized interest rates could force the issue. More on that tomorrow…
-Joe Withrow
P.S. Understanding this dynamic has been a game-changer for my own investment strategy. SOFR vs. LIBOR helped me connect the dots and “see” what was really happening on the macroeconomic stage. And that directly informs which investments will perform well in the years to come… and which won’t.
That’s going to be the topic of our upcoming webinar: The 4.5 Things You Need for Financial Freedom: How to Create True Financial Security in Today’s Economic Climate
We’ll go live on October 25th at 3:00 pm Eastern. The core presentation will run for about an hour or so. Then we’ll open it up to unlimited Q&A. No question is off limits.
And I promise – we’re going to have fun. You won’t find any stuffy corporate presentations here. We’ll talk about actionable strategies that you can implement immediately. And I’m going to send all attendees three guides to help with implementation.
So I think this event will be well-worth your time. You can register now at https://phoenician-league.lpages.co/webinar-oct24-int/. See you there!