Financial markets are too complicated for many.
Yet if you don’t understand the basics, it’s hard to make money, invest it, and stay ahead of the rising cost of living. So you’re forced to understand.
Let me explain the big picture of the US economy over the last 4 years that affects all financial markets. You’ll be richer for it.
A big event no one could predict happens
Let me slap you in the face with this fact.
The September 2001 terrorist attacks caused the 2008 recession. It just took 7 years, according to money author Morgan Housel.
The same happened in 2020. All was good in the lead up to January 2020. Then a bat virus came from nowhere. It crushed businesses and forced everyone into lockdowns.
The ramifications on the financial markets will likely be felt in 2023.
Trillions of dollars created out of nowhere
America’s central bank, The Federal Reserve, had to rescue the economy from collapse. Instead of raising income taxes and causing riots in the streets, they chose the hidden tax of printing money.
They essentially added a few zeroes to their bank account, and wham bam thank you mam they have money to save people and businesses.
The trouble is 40% of all US dollars ever to exist were created during this period. This means all the existing US dollars were devalued as a form of secret tax.
- The rich hold assets so all the excess money drives up asset prices. They get richer.
- The poor don’t have assets so all the excess money makes them poorer.
To make it easier for the rich they also lowered interest rates. So the rich went on a shopping spree using interest-free debt to buy more assets.
When you flood a country with free money the prices of everything go up (inflation). This is a known phenomenon.
The Federal Reserve became inflation deniers. “This inflation is transitory.”
They wrongly told the world it’d just go away like the flu. Or like the bat virus. But it didn’t. It hung around like a bad smell and produced record-high inflation.
Tech companies made a fortune and everyone in 2021 had one big party. Until the giant crash, of course. Tech collapsed.
Raising interest rates to Mars without Yolo Elon
The only way to bring down inflation and slow spending is to increase interest rates. This leads to job losses too.
So the Federal Reserve increased interest rates at the fastest pace in history. Suddenly everyone with debt was like “crap, I didn’t expect my repayments would get this high so quickly.”
And that leads us to today…
The current economic crash
I’m not a doomsdayer and don’t think you need to be fearful — but you do need to be informed and pay attention to the risks, and be diversified with your money just in case.
The run on Silicon Valley Bank is one example of the after-effects of interest rates rising. Eight smaller American banks are in trouble.
No one knows the true contagion.
Some say it’s 2008 all over. The truth is if a bank goes down then the US government and Federal Reserve will step in and save the day. 2008 gave us the playbook.
With the current state of interest rates the economy can only get worse from here. Job losses are certain. Inflation should cool real fast.
What many people don’t get is there is an election coming soon. The economy has to look good so the voters will re-elect the current government.
The answer is simple and you’re going to think I’m being controversial for saying this…
The American government and Federal Reserve will print more money out of nowhere and lower interest rates all the way down again. The formula now is so obvious. That’s why investors like me don’t worry too much.
Once the US starts to print money again and lower interest rates, riskier assets like stocks and crypto will start to skyrocket again.
The guy who predicted the 2008 financial crisis has an even simpler summary
Investor Michael Burry sums up the whole situation nicely.
The 2000, 2008, and 2023 crashes haven’t changed and never will. Overconfident greedy people will continue to take dumb risks and then go “oopsie” when it all blows up.
The Federal Reserve will then pat them on the back and save them with money that’s printed out of nowhere.
There is an endgame to the money printing era, but I suspect we’re a long way from there.
So in the meantime money printing solves all economic issues and makes people think they didn’t pay for the current crisis — when they did.
What this all means for you
The party is about to get started again. Interest rates will go down and free money will be available for all.
Don’t let crashes destroy your hope.
Use the price bounces we always see every cycle to invest in assets and do well for yourself. Just be careful out there and diversify in case this time is different and the money printing game stops working.