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The Global Economy Will Bizarrely Roar Back Up. Interest Rates Will Go down (Again).

by | Oct 3, 2022 | Money, Personal Finance

People are about to think I’m bat-sh*t crazy.

Ohhh well. What I’m about to run through has taken me 1000s of hours to learn. Because I don’t work a normal 9–5 job, I have the space to go deep.

If you understand what is happening to the global economy, and switch off the crazy doom preppers, you can make a lot of money.

A quick wrap of the current situation

Things are looking shaky.

America still doesn’t have inflation under control. The war that started earlier this year is still going. Supply chains are still interrupted because of the Asian red flag country’s bat virus lockdowns.

Even their real estate situation doesn’t look good.

What’s sent alarm bells off for me is the bond market. It doesn’t make sense. Prices and the interest one can earn should be going in the other direction, based on current economic conditions. Yet they’re not.

Two things got us to the dangerous point we’re at today:

  1. The money being created out of thin air by governments and central banks stopped (aka quantitive tightening).
  2. Interest rates went higher at the fastest rate in history.

When interest rates go up fast during times of instability, they almost always cause a recession — or make a recession 10x worse.

Higher interest rates in America also force the US dollar to get stronger. This has caused smaller currencies to collapse. Even the great British Empire’s Pound is looking shaky.

How interest rates weirdly go down, fast

When I talk to friends and family they tell me interest rates will only go higher. They tell me interest rates will be like 19% again.

All you have to do to bust a giant hole in this myth is look at where interest rates have been for the last few decades…

Screenshot from FRED

See the trend?

Interest rates have been heading down and to the right since the 1980s. They ain’t about to go all the way back to 20% again. Why? Simple.

As interest rates are going up the market is starting to break. There will come a point where people can’t pay the loans on their homes or investment properties.

Since the 1980s global debt has soared.

Society has never been in more debt.

When there are record levels of debt, raising interest rates breaks people and corporations faster. They simply haven’t budgeted for interest rates to go so high, so quick.

The playbook used since 2008

When you study economic patterns the answer to the current situation is damn simple.

  • Interest rates go up.
  • Markets crash.
  • Recession gets bad.
  • The central bank or government offers to help.
  • They create money out of thin air like crazy.
  • They lower interest rates to ease the pain and start a recovery.

If you want the best example in history then look at the bat virus of March 2020. The worst possible crisis you could imagine happens.

The news shows trucks rolling up to New York hospitals full of body bags. We can’t leave our homes. We’re trembling from fear.

The US government and central bank lowered interest rates to 0%.

Screenshot from FRED

Then they created 40% more US dollars out of nowhere that didn’t exist before. So the number of dollars in circulation grew exponentially.

Screenshot from FRED of M2 money supply

All the countries around the world did the same. Whatever America does the world does. Except most global trade is done in US dollars so it’s the currency to watch.

Your tax dollars don’t pay for the crisis

Many people live in La La Land.

When I ask them how the US government pays to forgive student loans, or hand out stimulus or send their army off to war, they think it’s tax dollars.

LOL.

There aren’t enough tax dollars to pay for all this craziness. The government pays for the madness by creating money out of thin air. This leads to inflation. Inflation is a hidden tax on your income.

Then they get the country into record amounts of debt on top of that. It’s why the government needs low interest rates so they can afford the interest bills on the debt.

Here’s what will happen next that affects you financially

So now you know how the game works.

More free money and lower interest rates are what fix the recession. The recession has to get bad enough, though, for those in power to backflip and go the other direction. Make no mistake, they will. Only a matter of time.

Given how low financial markets have dipped, I’m currently enjoying the discounts. I’m doing what many people didn’t do in 2020 — buy into the lows. It takes guts to do but when you understand the playbook it’s a smart decision.

In terms of when the shift in global financial markets will happen, I suspect it’ll be somewhere in 2023.

Times just have to get tough enough for the world leaders to pull their two magic levers: interest rates and money created out of nowhere.

When they do, markets will rage higher like they did in 2020, and those who bought assets while conditions were bad will make a boatload of money. It’s probably not fair or good for society. But this is the way the world works.

The only other motivation world leaders have is an election. That typically brings on a new era of cheap money and an even bigger debt bubble.

Understand the money game or be abused by the money game.


This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.

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