Are we about to enter another global crisis?
An economic meltdown of gargantuan proportions!?
Is the everything about to POP??
Well find in just over 10 minutes, because it’s time for Chico Crypto!
The last time America had an economic crisis was
in 2008, the great Recession, which followed in the wake of the Lehman Brothers bankruptcy.
The main reason for this economic failure was turning a blind eye to the financial sector’s
acute vulnerability to the potential bursting of the U.S. housing and credit market bubble.
as it wasn’t only the Lehman brothers who went down.
The crisis led to the failure or collapse of many of America’s top financial institutions.
Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, and AIG.
The culprit of the collapse was the bursting of the subprime mortgage market — defaults
on high-risk housing loans — which led to a credit crunch in the global banking system.
Yes, this rippled globally…what America did…had economic effects worldwide.
In the year following the 2008 financial crisis, economic activity declined in 50 percent of
countries across the globe.
However, the government made an unprecedented move to get the economic wheels turning once
again.
The government responded with a $700 billion dollar bank bailout and $787 billion dollar
fiscal stimulus package.
Now there are some people out there who will argue that the last time we had an economic
crisis wasn’t in 2008, but was only about 2 years ago.
The mini COVID recession of 2020.
Which only lasted for 2 months.
From March to April of that year.
Even from FRED data, from the United States FED, we can see they consider that time in
US history a recession.
But compared with other recessions, this was the shortest ever.
As we can see next shortest one was in 1980 which lasted for 6 months…and on average
since ww2.
The average length of a recession is 11 months.
And that COVID recession probably would have fit the normal length if it would have been
allowed to progress naturally, but it wasn’t allowed to.
The government took drastic measures, even more drastic than 2008 to prop up the economy.
Beginning under then-President Donald Trump and continuing with current President Joe
Biden…
Congress has approved some $4.5 trillion in total aid and stimulus packages.
This money printing stimulus is massive and isn’t confined to just the US.
It’s global.
Here are countries and their stimulus packages as a percentage of GDP.
COVID stimulus is blue, and the 2008 stimulus is black.
As you can see the COVID stimulus bubble is much much larger than what happened in 2008
for the world’s biggest economies.
And this has all been done while keeping interest rates historically low.
As we can see from this chart…
they have been basically kept at 0 since March of 2020 for the US.
Vast amounts of money have been loaned to borrowers, and their ability to repay is in
question.
Those monies have been loaned at the very low interest rates that do not nearly compensate
the lenders for the borrower default risk.
The borrowers have been throwing this money into assets across the board.
Stocks are at the highest levels.
Before the corona panic Global stock valuation was just under 90 trillion dollars.
Once the panic came, stocks hit a bottom of just above 60 trillion in March of 2020, by
the end of December 2021 they were over 120 trillion.
What about another asset…. housing?
Well the Median home price pre pandemic was about 329,000 dollars.
During the panic and “recession” that median price fell to 322,000.
Well as of today the median price has surged to nearly 405 thousand dollars.
And expanding out the chart, you can see this is the fastest growth of US home prices in
history.
And of course we know…Bitcoin and crypto.
Pre-pandemic the total capitalization of the crypto markets was about 300 billion dollars.
By March of 2020 that fell to a low of 125 billion.
But it reached a peak of over 3 trillion in November of last year….
Assets peaked at enormous levels, fueled by historically cheap money…but what happens
when this party comes to an end?
What happens when the FED stops the stimulus.
What happens when the FED is forced to raise interest rates??
So what about the Fed’s stimulus?
Well after March of 2020, the FED began a program of quantitative easing, when it began
buying long-term bonds and mortgage backed securities.
The increased demand from the Fed boosts the price of bonds, which lowers the yield.
Combine this with banks having more money to lend out due to the historically low interest
rates.
It equaled investments in lower-yielding bonds giving way to investments in higher-performing
stocks and even crypto.
Investors were chasing assets that could provide yield…
Well this bond buying program from the FED is about to end.
Yes the FED is about to start tapering this down.
The U.S. central bank began tapering in November 2021, scaling back total purchases by $15
billion a month, from $120 billion to $105 billion.
The Fed decided to double the pace at which it tapers on Dec. 15.
Rather than $15 billion, the Fed would reduce purchases by $30 billion every month into
next year.
This tapering will continue at the high rate of 30 billion a month, or it could even ramp
up more and increase until the bond buying program wraps up in late winter or early spring
of this year.
Now, tapering down bond purchases will have a ripple effect.
The yield on them will increase as the FED slows down.
Stocks will begin to face stiffer competition from bonds…but that increased competition,
won’t be something to worry about until the FED decides to raise interest rates…
So when is that happening??
Well things have changed quite quickly regarding the FEDs stance on when they are going to
raise rates.
From this transcript of Federal Reserve chairman Jerome Powell’s speech given in early November
we can see he said this.
“I do think it would be premature to raise rates today.
That’s not-I don’t think that’s controversial.
Certainly, I don’t know anyone arguing for that today.
And the reason is that there’s still ground to cover to get maximum employment.”
So just a few months ago, raising rates was out of the question.
Well let’s hear what Mr. Powerll had to say just a month later in the middle of December.
Just a month later, Powell’s tune changed.
It is now appropriate to raise rates going into 2022.
But when this year are rates planned to be raised??
Well Jerome spoke again in December clarifying just this.
Let’s listen in…
Rates won’t be raised until the Taper is finished, and like I mentioned earlier that
is coming sometime next year.
But Jerome said 2 meeting away from completing the Taper.
What meetings?
Well he meant the FOMC, Federal Open Market Committee meetings.
As we can see from the schedule of the meeting.
We have one this week….starting tomorrow
And then the second one, in the middle of March.
So if things go according to the FEDs plan….rate hikes may be announced by March of this year…
The question is will they and by doing so POP the everything bubble???
Well the reason they just might is inflation.
As we can see from this chart, anytime inflation has peaked above 5 percent…we have gone
into a recession with the US economy.
1970, 1975, the early 80s, 1990, 2008….
But here is what’s interesting: Pulling up the FEd’s interest rate chart, each time
one of these recession came, the FED fought it by lowering interest rates.
Inflation today is once again above 5 percent, actually sitting at 7.1 percent with the last
data drop of DATA, signaling a recession is about to come…yet the FED is talking about
raising rates?
They can’t without destroying the economy, popping the everything bubble…and forcing
that recession…
Now have you seen assets and their reactions to the FEDs recent talks and moves?
Since peaking at a record high January 4th the S&P 500 lost 8.7 percent in 17 days.
Another fall of 1.3 percentage points would take the main US market index into correction
territory.
A further fall of 10 percentage points would take the index into a bear market and thus
a fully fledged stock market crash.
Meanwhile, the pumped-up Nasdaq has fallen already 15 percent from its high.
Another 4.9 percentage-point fall and the tech index would also be in bear market and
crashing territory….and of course we know Bitcoin, it was down nearly 50 percent from
it’s November peaks.
These moves have come, even without the announcement of rate hikes.
The markets across the board are expecting an announcement from the FED at this first
FOMC meeting this week.
An announcement of increased rates….the markets are pricing it in.
The more the Fed scares markets into believing it will tighten - the bigger the market selloff,
and the worse the economic slowdown.
Incidentally, this also means that the faster markets crash, the faster the Fed panics,
and is forced to stabilize stocks because if you didn’t know, this year is an election
year…Midterms…a market crash can’t happen or the Democrats will be destroyed in the
midterms…
Thus…the everything bubble isn’t popping this year…the can will be kicked further
down the road, while inflation soars.
But it will come…by 2023.
Mark my words.
Cheers I’ll see you next time!