Financial crash thread (2022-2024)

[Galaxy_Traveler]

I want to get some opinions on this topic, and I would appreciate some of the members who are knowledgable about economics to chime in as well.

The issue at hand is the possibility of a fatal combination of high inflation combined with high federal interest rates, which could lead to a financial crash of similar proportions to 2008 in the next 6-24 months.

The reason for my assumption is the obvious increase in inflation in recent months, which in many Western countries moves closer to 10%. Eg in the US it is currently at 7.5%, a level not seen since the 80s.

The most common, if not only way for governments to react to rising inflation is to raise federal interest rates at which the state loans money to banks. Currently, the interest rates are still close to 0% in the US and also many Western countries, mostly as a result of the short sighted response to Corona.

The reason why I think the combination of both is a disaster in the making is the following. Below is a historical chart of the US inflation rate:



Compare this to the chart of the historical interest rates in the US:



Note how the periods of high inflation correlate to periods with high interest rates. Eg in the early 80s, the inflation rate is close to 15%, and the government kept interest rates at close to or even above 20% in order to lower inflation.

If you look at the side furthest to the right of both graphs, you will see that while the inflation rate is in a steep rise, the interest rate is still very low.
But this will have to change. And if the past is any indication, the interest rate will have to be close or above the inflation rate, in other words, somewhere around 7 or 8 percent soon. If that happens, it would spell disaster for financial asset prices like stocks and real estate, and many people will see their pension funds decline rapidly.

What is your guys' opinion on this?

The thing that worries and at the same time confuses me most is how obvious this seems. One needs to only look at these two graphs that show 60 years of inflation and interest rates, and see that this will become a massive issue in a very short time. One reason why I bring this up is because I am about to make a personal financial decision based on this model. Would love to see any input on this. Thanks all.

 

[Cynllo]

I think this is too big a question to answer, as we don't know what they can pull and be able to pull off.

Many contrarians thought the 08 crash would be the end, but The Fed and others unleashed stimulus unthought of.

Many contrarians went on to think that it was only a matter of time and that the March 2020 crash would take us out.

We found that they were again able to unleash stimulus unthought of, but this time it has caused considerable inflation.

This inflation is moving purchasing power towards large asset and equity owners.

My belief is that they can't stop money printing now. They managed to print over the 08 crash after the initial pullback, and then they almost completely printed over the March 2020 crash, as far as most people would be concerned. Western governments borrowed the economy they decapitated with their lockdowns.

The question is how many more times can they do this? And that is unknown. But they are going to keep grabbing for ways to keep the system operating. Maybe they will pull some trick to keep bond rates low, while jacking up interest rates. It seems that would fuel the great reset agenda - by limiting the small guy and keeping corporate and the government alive.

I don't think interest rates can go up anything meaningful in the current financial system. I believe they need to roll this system over for at least about another decade. At current interest rates The US has at least about another 100% of GDP of debt it can take on. Corporates can take on more. I think the current levels of inflation are only really a problem politically. Sniff 'n Suck (Joe and Kamala) own this regardless of them even having the slightest understanding of it. And all mainstream Western parties are on thin ice. If they can't keep people fat and happy, they will loose political control. It's my strong leaning they will do whatever required to keep everything propped up for about ten more years, and it doesn't matter if that means plunging Western countries in debt. In fact, that will probably be desirable for The WEF.

My assumption is the fiat will not be worth keeping hold of, and so I am looking to get some solid assets. Dubai real estate seems a good option, as the property market seems to have hit a bottom after a ~12 year dive. Property prices have also not been hit by inflation. In fact cheaper units have gone down in price, while better ones are up slightly. And there are good rental yields. You should be looking at 10%+ for vacation rentals.

 

[NoMoreTO]

We had a crash in March 2020. That crash was "papered over". Since then the stock market has roared primarily due to fed action and stimulus.

Eventually the chickens come home to roost. I'd say we are due and it is planned.

 

[Blade Runner]

One slight difference, which may not make a real difference since we are entering unknown territories of fragility, is that back in the 80s for example, the FED intervention scheme was tremendously different in what it would do, or even think of doing. Now we have a world fiat dirty shirt, tallest midget, or least ugliest duckling - all making it impossible to predict how long it can last. My guess has been 18-24 months, yes.

 

[palsofchaos]

This is step one of financial communism. You can't purchase a home if housing prices go past what a bank will lend you. And you can't maintain your property as property taxes/maintenance go up. This is how we all become renters on the debt slave plantation.

This inflation is by design and as long as consumers accept it, its going to continue.

If the fed raises the federal funds rate to current inflation, then yes the financial crash will be cataclysmic. But they won't. Current inflation is wiping away the debt burdens that last 14 years of money printing has perpetuated. Anyone with debt is benefiting.

If the fed raises rates and they crash the market, that's on them. They will take the fall for that and be blamed. I don't see them doing that.

Here's a litmus test. Every piece of news you here from now on, ask yourself: does this make supply shortages worse? Will inflation go up because of this? If yes then expect inflation to stay where it is or get worse. Median housing prices went up by 50k in 2021. Imagine 5 more years of that!

Eventually everyone will be begging the government for a solution.

 

[MountainWestPipeSmoker]

You can't purchase a home if housing prices go past what a bank will lend you. And you can't maintain your property as property taxes/maintenance go up.

Yet another reason that "Buy as much home as you can afford!" is terrible advice. The property tax on those tend to be high and get worse.

If you buy a cheaper home (even a... gasp manufactured), and can do so on some land you own, even if it's less than ideal, you've got a lot of freedom that you don't have if you have an expensive home with (say...) HOA requirements about keeping your grass green, mowing it daily, only using approved shades of beige for the painting, and getting HOA approval in triplicate before you fart in your house. Also, you owe them $500/mo - printing endless violation notices on waterproof labels to slap on your door isn't cheap, and neither are the legal costs to evict you from the place you "own" for the horror of a lawn long enough to be healthy, or, worse, raised beds out front. Sorry. I hate HOAs.

Like most other financial events, being rather heavily diversified (some cash, some metal, some in the markets) and living far below your means covers a multitude of possibilities. As does having useful skills you can get paid for.

I suppose if you think inflation will hit badly, you could load up on debt now and plan to pay it back with lower value dollars in the future, but that's well, well beyond my personal risk tolerance. I just don't like debt. Seen it bite too many people, too hard.

But I think it's reasonably wise to have a decent chunk of your assets in the markets, because as we've seen for a decade+ now, the Fed says one thing, but acts on their real mandate: The Dow Must Rise. And it'll wobble around, but any time it seriously drops, a huge wad of cash seems to magically go back in. BTFD and all. So given the (insane) rises, being out of that doesn't strike me as a great idea, though being able to live without pulling stuff from it for a while would be wise, so you can ride through the dip without having to pull assets out of it.

If you've got your cost of living low and your income significantly higher, there's just not a lot that can really cause pain. If you're leveraged from here to Hell with consumer debt, living paycheck to paycheck, with no savings and more house than you really can afford ("But I was preapproved!"), well... it doesn't take much to cause an awful lot of pain in short order.

 

[Blade Runner]

"When the levee breaks, got no place to stay ...."

 

[chance vought]

That’s the 100 trillion dollar question.

For context, the situation is more akin to the 1940s than the 1980s, as far as government debt level. The bond market would collapse if interest rates ever go above 3%, much less anything above inflation. Huge pension funds and other bond holders would be insolvent if bond prices start falling.

Debt to GDP was low in the late 1970s and 1980s, which allowed high bond yields without government defaulting. The 1940s was a soft government default to wipe out the crushing government debt (Executive order 6102.)

Lyn Alden has some good articles on the historical context of our current predicament.

Personally I think there will be short, sharp deflationary periods, maybe a quarter or less, followed by longer periods of higher inflation. Like stair steps, trending on aggregate up and to the right.

A soft default will be attempted, but financial repression is much harder now than in 1933.

 

[MajorStyles]

I don't think it will happen, The vaxx money will be heading back to the grubby palms of international finance. They will, in turn, be able to continue their life of usury for a bit longer. In 2008, they were able to keep the usury orgy going by raiding pension funds and getting government bailouts (i.e. robbing the taxpayers). This corona/vaxx debacle was basically another shell game, designed to fleece the goyim of billions.

This is the "usury eventually leads to theft" thing that E. Michael Jones describes. They basically run the same play, only the change the details around.

Also, (((they))) don't want to US economy to collapse, because their existence depends on sucking the blood out of a host body. The 30 trillion dollar debt is basically another way of saying "Ha Ha, goyim....guess what, you'll never get rid of us!!!" The number is almost some fictitious joke, like "muh six million." It can never be paid back...the point is placing the idea of eternal slavery into the gentile mind. It's like a crazy wife that constantly issues ridiculous threats.

The goyim overthink these things. This is basically just another hand-rubber's shell game, designed to keep you working while they live on compound interest (miserably at that).

 

[cosine]

One reason why I bring this up is because I am about to make a personal financial decision based on this model. Would love to see any input on this. Thanks all.

Curious what decision.

Like most other financial events, being rather heavily diversified (some cash, some metal, some in the markets) and living far below your means covers a multitude of possibilities. As does having useful skills you can get paid for.

I suppose if you think inflation will hit badly, you could load up on debt now and plan to pay it back with lower value dollars in the future, but that's well, well beyond my personal risk tolerance. I just don't like debt. Seen it bite too many people, too hard.

But I think it's reasonably wise to have a decent chunk of your assets in the markets, because as we've seen for a decade+ now, the Fed says one thing, but acts on their real mandate: The Dow Must Rise. And it'll wobble around, but any time it seriously drops, a huge wad of cash seems to magically go back in. BTFD and all. So given the (insane) rises, being out of that doesn't strike me as a great idea, though being able to live without pulling stuff from it for a while would be wise, so you can ride through the dip without having to pull assets out of it.

If you've got your cost of living low and your income significantly higher, there's just not a lot that can really cause pain. If you're leveraged from here to Hell with consumer debt, living paycheck to paycheck, with no savings and more house than you really can afford ("But I was preapproved!"), well... it doesn't take much to cause an awful lot of pain in short order.

My assets will of course look different than yours, but it's the same idea; if you have some combo of hard assets, income sources and cash reserves, you'll be fine.

For me one of the harder decisions was buying a new property. I took on a large amount of new debt in 2021, and real estate is always riskiest/most leveraged soon after purchase. It's being renovated now, so for me hopefully the market doesn't crash before it starts cash flowing and reducing my risk/growing the cash stockpile a bit.

 

[BURNΞR]

CPI being a measure of inflation is a blue pilled lie. It is more like 15-20% and depending on what we are talking about it's a lot more. Scarce assets like property and land went up way more than 7.5%. Only the abundant things like wifi, Kraft Dinner and cheap to produce crap went up 7.5%.

The smart crowd in economics (mostly Austrian school) have talked about this for over 2 decades and their theory is that central banks will not be able to do what they did during the late 70s and early 80s where they raised interest rates. Their reasoning is that there's just too much debt this time and the pain in raising rates would destroy the economy beyond depression levels. The Fed is tapering and plans to "raise rates" but all the smart money knows that increasing rates beyond certain levels like, even 3% (made up number), could unwind everything from property markets to corporations that wouldn't be able to service their loans. Right now they are raising rates by miniscule percentages and gauging how bad this is for the economy. At some point it is going to hurt and people are going to get political and put pressure on the Fed to go back to zero. How else can the government pay for their debts and unfunded liabilities? They cannot.

The path of least resistance is more money printing and then figuring out how to claw back the money in circulation through taxation instead of increasing rates. According to MMT, money taxed is money destroyed and removed from circulation. Most people believe taxed money is simply spent by the government but this is not accurate, it is destroyed to avoid inflation. So the question becomes whether governments will be able to tax like they've never taxed before, not whether they will raise rates (they can't without destroying everything). Historically, the rich have always been able to avoid taxation and my hunch is that while governments are ramping up cooperative efforts with other countries to introduce global minimum taxes most of the super rich and corporations will figure out clever ways to dodge most of it. Therefore I believe inflation as we know will get worse. You will see asset prices go down temporarily but number always goes up.

 

[Blade Runner]

The path of least resistance is more money printing and then figuring out how to claw back the money in circulation through taxation instead of increasing rates.

Yes, follow both the money and the path of least resistance (political). This.

 

[Blade Runner]

For context, the situation is more akin to the 1940s than the 1980s, as far as government debt level. The bond market would collapse if interest rates ever go above 3%, much less anything above inflation. Huge pension funds and other bond holders would be insolvent if bond prices start falling.

When do the pension funds finally send real shockwaves to their "pensioners"? Will it take 2 more years? Or will it be paid back in the next 20+ with dollars inflated to half value, or less ... or will the Fed just backstop a portion of it with FED digital creation?

 

[Caduceus]

Children in Weimar republic Germany playing with stacks of worthless money towards the end of the 1920s, early 1930s.

Young lady in German Weimar republic literally burning money in an oven for heat

 

[cosine]

Back to the original topic:

In late 2017/early 2018 I was absolutely convinced that we were about to enter a big recession. I bought into the Peter Schiff playbook that the can was kicked down to the end of the road and the reckoning was about to start.

I sold some stocks, the S&P dropped 4% one day in February 2018 and I told myself and my friends that I timed it all perfectly. I couldn't have been more wrong.

Number one rule of wall street: nobody, if you're warren buffett or jimmy buffett, nobody knows if a stock is going to up, down, sideways, or in F***ing circles, least of all stock brokers

It's nearly impossible to predict whole market cycles. I've learned to just plan as if anything can happen.

 

[MountainWestPipeSmoker]

In late 2017/early 2018 I was absolutely convinced that we were about to enter a big recession.

The wisdom of "The markets can remain irrational longer than you can remain solvent" applies - there is a lot of money and power devoted to making sure The Markets Will Go Up, because that metric is, right or wrong (mostly wrong), used as the metric of the economy's health. And it's an awful lot easier to measure than anything that might be useful, like individual wealth and satisfaction.

And the Dow is now 30-40% higher than it was in the start of 2018.

 

[chance vought]

When do the pension funds finally send real shockwaves to their "pensioners"? Will it take 2 more years? Or will it be paid back in the next 20+ with dollars inflated to half value, or less ... or will the Fed just backstop a portion of it with FED digital creation?

Bond prices won't be allowed to crash. Yields will continue negative in real terms, 99% of people that get a pension (govt workers) aren't going to realize that they are getting half of what they were promised in real dollars, because we won't have high enough inflation for it to be obvious to most people, and they will be getting a large amount in nominal terms...
Bond holders get robbed slowly instead of suddenly.

 

[cosine]

Bond prices won't be allowed to crash. Yields will continue negative in real terms, 99% of people that get a pension (govt workers) aren't going to realize that they are getting half of what they were promised in real dollars, because we won't have high enough inflation for it to be obvious to most people, and they will be getting a large amount in nominal terms...
Bond holders get robbed slowly instead of suddenly.

Democrats increase social spending
Republicans decrease taxes but don't actually decrease spending, sometimes spending more as well
Austerity has no political party
The compromise is to print more dollars so no one panics in the short-term and congressmen all win reelection, but it's a long term wrecking of the economy just like you said. The people who get screwed the worst are those who work hard, save "responsibly" but don't invest well.

 

[Galaxy_Traveler]

Thanks everyone for your insights.

Curious what decision.

It basically consists of selling all my stocks and pouring the money into real estate with a fixed interest rate loan as a hedge against inflation. The thinking behind this is that I might lose out on some stock gains if I'm wrong, but I would rather sleep better knowing that I am avoiding exposure to what might go down in the next months and years.
My main worry is that if inflation keeps rising beyond eg 10%, the FED might have no other choice than raising rates more radically. Another worry is that the 2008 crisis was in part a result of the FED reaction to 9/11. I feel often times, whatever the FED does as a reaction to megaevents such as terror or Coronavirus, creates a bigger problem for the majority of the consumer market down the road.

 

[chance vought]

Real estate has been good, but there are moderate to huge costs that don't go away: upkeep, and taxes. If my thesis plays out in the long term, real-estate will go down and never come back.

Even though real-estate is currently used as a store of value and an asset, unless you are leasing it as farmland with very low taxes or it is producing a lot of income, it's really just another liability, costing you tax and maintenance forever.

Real estate is a good deal if you can get a negative interest loan, but for non-cantillionaires, you can only get that for your primary residence, so it doesn't produce income for you. People like Trump who were closest to the money spigot can get all the freshly created money they want at 2% interest to build properties, and that's how you get rich in the current system. No one had to produce anything to get that money, it is just created in the commercial banking system, and now it's an asset on their balance sheet, the cantillionaire can use the created "money" to buy Real assets, meanwhile most people have to actually work and produce value to get what the cantillionaires get for just being plugged into the spigot.

Banks are the biggest winners, they create billions in money that they didn't have to earn, and collect the interest on the new money. Your checking account doesn't matter to them in the slightest, in fact that is just a liability to them, money they owe you that is not producing income for them.

If your thesis plays out (aggressive rate hike) , real-estate will go down until either rates drop or inflation accelerates in the face of rate hikes, and in that situation I'm not sure.

I don't think we will see 10% inflation until most other fiat currencies are already dead. Dollar demand in the next decade will be strong, as the weaker currencies get swallowed by it. Venezuela, Argentina, soon Turkey (G20 nation). Expect more foreign currencies to fall and world dollarization. That strong demand for dollars will allow the US to continue the deficit spending for a long time, until most of the world is on dollars.