Justin’s note: Today, I’m sharing an important essay from Crisis Investing editor Nick Giambruno. Below, he explains the main cause for the harmful distortions in today’s economy—and why things will only get worse from here.
Fortunately, we just put the finishing touches on the ultimate crisis report to help you protect yourself (and thrive) in the months ahead. Read on to learn more…
By Nick Giambruno, editor, Crisis Investing
You may recall the international spectacle Alan Greenspan sparked in 1996.
In an otherwise dull and forgettable speech, Greenspan, the Federal Reserve chairman at the time, said the now-famous phrase “irrational exuberance.”
Investors thought Greenspan meant the Fed was about to raise interest rates.
Of course, Greenspan didn’t say the Fed would raise rates. Nor did he intend to signal that.
Nonetheless, investors quickly panicked.
US markets were closed at the time, but stocks in Japan and Hong Kong dropped 3%. The German stock market fell 4%. When trading started in the US the next day, the market opened down 2%.
Billions of dollars of wealth vanished in 16 hours… all because one man said two words.
That’s an absurd amount of power for one person to have.
It’s also a shameful testament about the economy. It’s based more on the Fed’s shenanigans than actual production.
After the US president, the Fed chair is the most powerful person on the planet.
By simply saying the right words, the Fed can create or destroy trillions of dollars of wealth in both the US and abroad.
We’re in Uncharted Territory
Throughout the 1920s, the Federal Reserve’s easy-money policies helped create an enormous stock market bubble.
In August 1929, the Fed raised interest rates and effectively ended the easy credit.
Only a few months later, the bubble burst on Black Tuesday. The Dow lost over 12% that day. It was the most devastating stock market crash in the US up to that point. It also signaled the beginning of the Great Depression.
Fast forward to today…
The economy has been on life support since the 2008 financial crisis. The Fed has pumped it up with unprecedented amounts of “stimulus.” This has created enormous distortions and misallocations of capital that need to be flushed.
Think of the trillions of dollars in money-printing programs—euphemistically called quantitative easing (QE) 1, 2, and 3.
Meanwhile, with zero and even negative interest rates in many countries, rates are the lowest they’ve been in 5,000 years of recorded human history.
This is not hyperbole. We’re really in uncharted territory. (Interest rates were never lower than 6% in ancient Greece and ranged from 4% to over 12% in ancient Rome.)
The too-big-to-fail banks are even bigger than they were in 2008. They have more derivatives, and they’re much more dangerous.
Allegedly, the Fed has been taking these actions to save the economy.
In truth, it’s warped the economy far more drastically than it did in the ’20s. I expect the resulting crash to be that much bigger.
The Biggest Threat to Your Financial Well-Being
The mainstream “fake news” media endlessly praises the Fed. It portrays Fed employees as a bunch of selfless, benign bureaucrats trying to save the economy.
In reality, the Fed is the primary cause of most of the harmful distortions in the economy.
You can blame the Fed for…
- Unlimited money printing
- Artificially low interest rates
- The boom/bust cycle
- Bailout funds to prop up “too-big-to-fail” institutions
- The War on Cash
- Cronyism in the financial industry
- Various asset bubbles
… just to name a few.
If you ask me, the Fed is the biggest threat to your financial well-being.
Today, That Threat May Be Imminent
Last December, the Fed raised interest rates to their highest levels since the 2008 crash.
That could help prick the massive bubble in the stock and bond markets.
But the threat goes beyond that. Even a small rate increase could also be lethal for the US budget, which is built on credit.
In other words, economic depression and currency inflation (perhaps hyperinflation) are very much in the cards.
These things rarely lead to anything but bigger government, less freedom, and shrinking prosperity. Sometimes, they lead to much worse.
Fortunately, you don’t need to be hostage to what’s coming. You can take a few steps today to prepare for the worst.
To help you get started, our team just put together the Ultimate Crisis Playbook.
With 109 pages full of tactical steps from every guru across our business, this market crash guide is designed not just to help you protect your wealth in the months ahead… but also to prosper.
Editor, Crisis Investing