"Most People Have No Idea What's Coming" | Raoul Pal’s Last WARNING Ft. Robert Kiyosaki
So okay lets go back and say im going to go. Take you through a history lesson then well get to today. Thats amazing. Why im concerned yeah so why world war ii, world war ii was a fascinating period because, like kovid, the entire world had basically been stuck at home or been on? You know on battlefields, everyone came back, there was no supply of of commodities and goods, global supply chains were broken and everybody came back and started consuming again and guess what inflation went up to 13 or something uh, maybe even higher, and that period was fascinating because Interest rates went up, and the first thing that happened was the economy went straight back into recession and rates and inflation went negative because it was a massive tightening of monetary conditions. You raised the cost of goods on people and didnt, raise their salaries enough people couldnt get the goods they wanted exactly like now, and everything collapsed. So we went back into recession and then eventually some better times and ill come back into the 1940s and 50s, because i think its a really important parallel that most people misunderstand the next time we saw anything remotely like this was 1974.. A lot of people tell you its the 70s again: inflation inflation! Well, the inflation episode we had in the late 70s was driven by demographics. That was the baby boomers entering the workforce all at the same time it was the largest demand shock the world had ever seen, and we had a supply shock of this oil crisis of the arab all embargo thats, not repeating now.
What is actually more similar is 1974 was the arab oil embargo, the price of oil tripled and interest rates went up, inflation shot up and the immediate effect was, the economy went down the toilet, yes and inflation fell in 1974. Afterwards, people are still thinking. Inflation goes on forever, it did not, and it did not in the 1940s either. Then the next one up is 1984 1984. We saw an issue where global trade there was a huge amount of trade disputes. The dollar was pretty strong, like it is now. Interest rates were going up and inflation was high and everybody was fearing. Looking back and saying: oh, we dont want the early 80s late 70s again the inflation inflation, so volca was tightening rates too much and the economy collapsed. It didnt go to recession because the fed quickly started cutting rates, but the dollar went up a lot more and created a lot more problems when we ended up with the plaza record in 1985, when everybody had to stop the dollar going up from destroying the global Economy, inflation high, the fed were hiking rates, trying to tighten the balance sheet and what happened is the economy rolled over really quickly again, okay, so whats going on here? Why does this phenomena keep happening? Everyone extrapolates inflation out forever. What actually happens is consumption falls because weve tightened monetary conditions, tightening money, monetary conditions to ordinary people means the cost. Your mortgage has gone up at the fastest pace in history.
Over a one year period. Mortgage rates have never risen this fast, so any money you borrowed has suddenly got much more expensive. Your wages havent kept up with the cost of just basic services like food, so youre actually feeling poorer. So you cant consume as much, and you start not consuming other things and its suggesting that, if were not careful, we could have a very sharp nasty recession, meaning kind of a negative five percent gdp recession. It might be short depending what the fed does and well come on to that in a bit. So weve got the setup that weve seen many times in the past. Weve got the forward. Looking indicators, this monetary tightening suggesting weve got some real pain to come. Then the anecdotal evidence were seeing all the tech companies who were bulletproof, laying off staff and giving earnings warnings because everybody cant raise prices enough, so their margins are falling and people have overextended amazon said weve hired too many people theyre one of the biggest employees in The united states, okay, this is not good. The answer to higher prices is higher prices and thats whats happened and everybodys. Looking around you themselves, saying well whats going to break when the when stuff. Like this happens, the market goes down. Somethings going to break, you know were looking what bank is it? What hedge fund is it? The actual answer is its the economy. The economy has just broken and the fed are gon na have to pivot theyre saying and its dead right.
The monetary conditions that weve imposed on corporates and people is the biggest tightening in all history. Weve also got china slowing down very fast, because the a lockdowns but also theyve been in recession. So weve got no and europe with a war and having to deal with this energy transition, so weve got no leg of global growth here now the question is: is how bad does this get? What choice do you give people, do you say well, youre going to get destroyed because of the supply chain issues because of cloven all of this and your wages wont keep up so were going to destroy household net worth and everythings levered. So all the borrowings against houses and all the borrowings against equities and all of the borrowings on top of borrowings and youre going to let the collateral go down and blow the entire thing up. The basement currency works in a simple way if youre really thirsty – and i have a bottle of water – youll pay anything for it. If youre really thirsty and ive got five bottles of water, youre kind of thinking yeah, i probably need some of that water ill buy them all, but at a lower price, if i say heres a million bottles of water, you dont want any of it because theres Too much water now it has no scarcity. So if you make too much of something, it becomes less valuable. So if da vinci created 50 million pieces of art, guess what theyre worthless, if something gets devalued versus something else, so were not making more shares in the s p, actually, what were doing is buying them back making less of them.
Therefore, the s p goes up. Real estate, yes, theres periods where we try and create new real estate, but generally real estate prices go up versus the fed balance sheet because its a relatively scarce asset same with gold same with crypto right, and we either go through a scenario like 2000, which was A typical old school recession, where you know equity markets, unwound excesses, the bear market was 18 months or so, and then the fed keep cutting rates and eventually it stabilizes. But if we look at 2008, which was the next recession as soon as the fed used the fed balance sheet, we pretty much stopped in its tracks happened really quite quick after they did that they cut rates. First, didnt really help because the banks was had seized up. Then they used the balance sheet. Then they did it again in 2010, 12, 16 and then 18 was the fed pivot, the powell pivot, where they went from hiking to oh, my god. We need to cut its the fourth turning and thats where we are, and this may be the final event of the fourth turning it may be just another phase of pushing this towards it. You know 2001.. We need to stop what were doing and change what were doing. It is so important for people to get the right education. It is imperative and there are lots of kind of scams around education. We wanted to democratize the same kind of quality of financial education that weve done with financial information.
You guys watch real vision. You know the quality and its not. I cant fully announce what were doing but were really going to change the game on what it is, because these things cost fortunes thousands for a good course, its thousands of dollars.