The Truth About The Crypto Crash Revealed
Who is they the central planners at the federal reserve and the politicians? Their main objective right now is to bring down the headline cpi number or consumer price inflation and the way theyre going to do this or the way theyve been trying to do. This is bringing down asset prices assets just like crypto currencies lets start by going over this chart. It goes back to 1980.. Actually, the chart goes back further than that, but well start at 1980 goes all the way to 2020.. On the left. We go from 300 percent up to 650 percent, so this green line represents the net worth the combined net worth of americans as a percentage of gdp. So this isnt how much income theyre earning because adjusted for inflation, that line would be pretty flat, go up very slightly, but this is how much their home is worth their home equity, their 401k, all of the assets they own outside of their income. That gives them an incredible amount of purchasing power, in fact its purchasing power. They didnt produce anything to receive more on that in just a moment. So we can see going back to 1980 that it was right about 325 percent, the total net worth of americans. As a percentage of gdp, and then it goes up slightly about 1990, but if you look at this historically going back to 1960, this still is at a level thats very consistent, going back a few decades, then in 2000 it comes way down due to the dot Com bust, but then alan greenspan comes in and drops rates artificially low, which gives us the housing bubble and that takes net worth up 500 percent.
We know what happens, then they tried to raise rates and then all those assets that home equity came crashing down. But in the minds of central planners, the cure for too much central planning is even more central planning. So what do they do when asset prices come down in 2009, going into 2010? They drop rates even lower down to zero percent, and they couple this with quantitative. Easing the feds balance sheet goes from 800 billion, all the way up to 4 trillion prior to the cerveza sickness and now or just recently. It was up over 9 trillion dollars. So as the feds balance sheet went, parabolic so did asset prices and we go from about 450 percent of gdp in 2010, up to where we are today or where we were just recently lets say back to the end of 2021, where the net worth of americans As a percentage of gdp was up close to 600 percent, and i want to remind you if inflation was measured today the same way it was measured back in the 1970s. Our cpi would be very similar to what it was in 1980 or 81, when paul volcker took rates to 18 percent, but just recently the fed has increased rates to what 1.5 percent. Why is this? Because they look at this chart and they also look at charts of the debt in the system. Sovereign debt is at all time highs. Corporate debt, all time highs and consumer debt is at all time highs as well.
So they know that if they take interest rates up to a certain degree, they are going to crush the entire economy, because the government, the corporations and the consumers cant afford normalized interest rates, lets say fed funds at four five six percent and they definitely couldnt afford Positive real rates, so this would be the federal reserve taking their overnight rate above the rate of consumer price inflation which, as measured by the government right now, is 8.6 percent. So you can imagine what would happen to the entire u.s economy. If jerome powell took rates to lets, say nine percent, the entire house of cards would come crashing down. So now lets look at the problem of consumer price inflation through the lens or the framework of these central planners at the fed, the treasury, the government. These phd economists, they believe in something called the phillips curve, and this simply states that there is an inverse relationship between inflation and the unemployment rate. So if the unemployment rate goes down, inflation goes up. If the unemployment rate goes up, then inflation or headline cpi goes down and a perfect example of this is recently larry. Summers has come out and said that, in order to tame inflation, they have to increase the rate of unemployment, they being the fed and the central planners. But this presents a dilemma: this puts them in a very difficult position. How do you increase the unemployment rate without crashing the economy in their minds? They think, or at least theyre saying that they can do this without creating a recession? Now i would argue that were most likely already in a recession, but well shelf that for a moment again were just looking at things through their framework.
Well, i think they look at this chart and say: aha, there is the answer. If we can somehow bring down asset prices or decrease the net worth of average americans in aggregate total, we can bring down the cpi without it having too much of an effect on the overall economy and potentially pushing us into recession. And if we do go under recession, it will be very mild again their words, not mine. So i think the game plan is to raise interest rates just enough to make it seem like youre, going to get really tough on inflation like youre. The next paul volcker, but dont, raise them too much to where you break the economy and then, while youre talking tough. This makes the market believe that youre going to continue to raise interest rates, maybe up to four or five percent. So then, asset especially risk assets start to sell off like the nasdaq, the s, p and definitely cryptocurrency. So how will this bring up unemployment to a level that, in their minds, would start decreasing the cpi to a point where its politically palatable going into the midterm elections? Well, i think that one of the big reasons we have a labor shortage right now and one of the main reasons the unemployment rate is so low, is because people have made so much on their stock portfolio or on cryptocurrencies or their home. Equity has gone up to a point where they dont have to go back to work at least not right now.
So if you bring down asset prices, now all of a sudden theyre in a position where they have to go back to work, so you turn a labor shortage quickly into a labor surplus. In fact, i heard a great story the other day on one of my favorite podcasts. That gives an example of this potentially playing out in real time. It was a story from a restaurant owner who said he lost all of his employees to this boom in cryptocurrency, because when they would leave when they would quit, he would say why are you quitting youve been a great employee for the last year or two years? They said because ive made so much in cryptocurrency that im going to take some time off, but now all of a sudden lets say the last month or so hes seeing all of those employees come back to work and ask for their old job. So i personally believe that if asset prices come down enough, it definitely will impact the unemployment rate, but unfortunately for the fed. I think it will also negatively impact the economy. Lets go back to this example. I use all the time on my whiteboard videos of a hot air balloon and the fed still believes that the balloon part, the part thats carrying around the basket is the economy and the basket pretty much asset prices. So wherever the economy goes so will assets. But in my opinion, its completely switched – and i think that this chart proves that it has switched from a standpoint of now the hot air balloon isnt the economy, but its asset prices themselves and the basket is now the economy.
So wherever asset prices go so goes. The economy and i dont think the fed has figured this out yet and if they have, they wont admit that the u.s economy is now completely and utterly dependent upon asset bubbles, in other words, its impossible to bring down asset prices to a level that would negatively Impact unemployment enough to bring down cpi without throwing the united states economy into a recession, if not a depression, so the main takeaway is, i think the fed is going to increase interest rates just enough to make it seem like theyre, getting tough on inflation theyre. Also going to continue to try to talk down the market through expectations policy by making the market believe that theyre, taking a very hawkish approach. Theyre going to combine this with quantitative tightening, which is reducing the size of their balance sheet, editor go and throw up a chart. We can see that theres a direct correlation between the feds balance sheet and the s p 500. So again in their minds. They can try to have this soft landing where they increase interest rates just enough and bring down asset prices just enough to bring down the cpi just enough for these politicians believe they have the highest probability of getting re elected at the end of the day. This has nothing to do about the average joe and jane or whats best for society. It has everything to do with whats best for the politicians and the central planners for more content.
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