People thought that 2020 is the worst year ever, little did they know that 2022
is going to be much worse. Not only we didn't get rid of Covid, but we created massive inflation,
huge supply chain problems, and now a war in the East of Europe. Which is
creating a shortage of wheat and oil in the market, pushing prices to rise worldwide.
Some people are expectin g a recession, others a depression, and some stagflation.
The problem is that, at th is point, there are not many things that the fed can do.
California’s governor Newsom suggested distributing cash to people to compensate them for
hiking gas prices, but that's not a solution. We tried that in 2020 and created massive inflation.
But if it wasn't for printing money, the 2020 crisis would have been much more.
Remember what happened to the stock market in the first days of the pandemic?
Let's hope that never repeats again, but with everything that's happening, there is a good
chance that we are going to get into another economic crisis pretty soon. So here are a
few things that you should know if you want to be ready and take advantage out of the next crisis.
You can’t solve every problem with the printing press
Ideally, when you have a crisis, you have to fix the crisis to get out of it. If your business
fails and you run out of money, you should cut back on your spending.
Maybe go and live with your parents for a while, stop driving and take public transport.
Or you can borrow money to keep your standard of living. However sooner or later you have to
pay back that money. But what if your second business fails and you run out of money again?
Can you borrow money again to maintain your standard of living?
Maybe! But the question is - how
many times can you do that? Once? Twice? Trice?
And that's the problem with the US. Ever since the dollar became the global currency reserve,
the US kept borrowing money to get out of financial crises without suffering the pain.
Think of the 2008 crash. Ideally, every company that gave junk loans or insured them
should have suffered. But the government is like, if these companies would go bankrupt,
hundreds of thousands if not millions would lose their jobs, so why not borrow money to just bail
them out and we will pay that debt later. Boom!
Instead of 10 or 15 years, the US is out of the crisis in a couple of years. In 2020, we were
forced to stay in our homes but we needed money to pay for the bills, so the government is like,
don't worry, we will send you stimulus checks, and the businesses like - how about us?
Don't worry, we will also give you as much money as you want!
So we got out of the crisis relatively easily.
If this was done in any other country other than the US,
it would have had hyperinflation because the currency isn't held as a reserve worldwide.
Of course, other countries do print money as well, but not at the scale of the US.
But that doesn't mean there is no limit to this printing money culture.
The question is, how many more crises can we solve by printing money?
We don’t know, but if we fall into another recession because of rising oil prices and
the war in Ukraine, the country is not in a position to force its way out of the crisis
by throwing cash into the economy again
since the fed is already planning to keep raising rates to tackle inflation.
Yeah, rates were raised by just 0.25 percent in March but that's the nature of the fed.
They wouldn't raise rates instantly by a huge percentage but would do it gradually.
2. What if the dollar stops being the global reserve currency
People need something to preserve their wealth through. Gold is a great example. Of course,
it’s a pretty useless asset. There aren’t many things you can do with it but it does the job
despite its shortcomings. You can stash part of your wealth in real estate, stocks, bonds but
at the end of the day, you need an asset that's easily moveable. That's why 60% of the global
reserves are in US dollars since the dollar is backed by the most powerful economy in the world.
But if people start losing faith in the dollar when they see that the fed is
simply printings trillions of dollars without shedding an eye, they will start looking at
alternative currencies as a reserve currency such as the Chinese Yuan which already represents
over 10 percent of the global currency reserves. https://fred.stlouisfed.org/series/CURRCIR
This graph illustrates how many dollars are there in circulation. Until the 1970s,
things were relatively stable, but pay attention to what happens after the 1980s, the amount of
dollars in circulation rises significantly! How about 2008? Do you see how
printing money got worse? Each time we say that we are
going to solve this problem later, we end up printing more like in 2020, look at that hike!
The moment the US loses its status as the world's global reserve currency,
this can easily turn into hyperinflation. Let’s hope that doesn't happen anytime soon.
3. This can lead you to think that holding cash is a bad idea
While it looks scary that your dollars might soon be worth nothing, the reality
is that these changes do not happen overnight. For example, the British Empire was on the decline
since the beginning of the 20th century but its currency was still the global reserve currency.
In fact, even after th e first world war, 50% of global currency reserves
were in British pounds, and only after the second world war, the British pound
lost its place as the global currency reserve. So these kinds of changes don't happen instantly.
But recessions happen pretty often. Financial crises are part of economic
growth. And during crises, cash is the king. Since the economy struggling, people are afraid
to spend which further worsens the crisis so even great valuable companies struggle and
are usually sold at a fraction of what they are really worth. That's why it's always better to
keep part of your wealth in cash especially when it seems like we are headed into a recession.
4. Crypto is going to boom
In the middle of everything that's happening in the world, unstable assets get very volatile,
and that includes crypto as well but the absolute opposite is happening.
Crypto is booming. Moving money around the globe is one of the main
pillars of progress and since the war is taking place in this part of the world,
both nations are looking into crypto as a way out. You can donate to the Ukrainian
central bank with crypto and Russia's elite are using crypto to get out their wealth from Russia
since visa and MasterCard have sanctioned all cards that are issued within Russia.
At the time of this script, bitcoin is already booming. Since the beginning of the conflict, it
has already risen by 15 percent. The exact same is happening with Ethereum. I am not saying anything,
but nowadays crypto is much more stable than some of the biggest tech companies such as Facebook.
5. Don’t let anything distract you
Rising gas prices, unprecedented inflation, conflicts around the world push you to take
emotional decisions. The truth is that the world has always been in chaos. A little over a decade
ago we had the housing crash, some counties like Greece haven't recovered from that crisis
yet. Prior to that, we had the dot com bubble. For god's sake, we even went through a world war,
the biggest war in the history of mankind where nuclear weapons were used. So, what's happening
now isn't anything close to what we have been already. Of course, there is always a possibility
that everything could get worse. But that’s not under your control, your job is to stay focused on
your financial goals and adapt to circumstances. That's the only way to financial freedom.