We are approaching a fork in the road where the Fed will have to make the tough decision to pull back on its assistance to the economy. The problem is this will trigger the next crash that will necessitate even more stimulus to "rescue" the economy yet again. The next round of stimulus, assistance and bailouts will be the final straw on the camel's back, and the economy will overdose on the six policy responses likely after the next crash.
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See Full Video Transcript Below
What's up everybody my name is Joe Brown and this is heresy financial I recently did a video about how I think a market crash will occur in 2022 as a result of fed tightening now I know I talk about monetary policy inflation deflation a lot on this channel and it seems like out there there's some general sense that there's going to be some event that's going to end up crushing the economy resulting in things like the dollar losing its reserve currency status and wealth in America just dropping off of a cliff however this doesn't happen as a result of the crash these kind of things happen as a result of the response to a crash because the crash is just nature taking its course it's the cure for the malinvestment it's like a forest fire which deposits nitrogen in the soil to allow the next generation of forest life to thrive but instead of allowing the healing to occur the response to try and stop the crash is what will be devastating and though many think that the response to what happened in 2020 was severe it was not all the way they can in fact take it one step further so in this video we are going to look at the six major policy responses that are going to end up sealing the coffin being the final blow dealt to the American economy and the dollars reign around the world ready let's dive in if you look at the last few decades every crash or crisis has been met with intervention but the tricky thing about trying to soften the blow from a crisis or crash is that it sows the seeds for a worse crash worse bubble more necessary intervention down the road and down the road when you intervene to soften the blow from the next larger crash that itself sows the seeds for an even larger problem down the road from there so how did this play out well let's look back at the dot-com bubble when it burst Greenspan entered the chat he dropped interest rates to soften the blow on the stock market this was known as the green span put which later became the Fed putt and if you don't know what a put is check out my options courses linked in the description below now this drop in interest rates did soften the blow from the dot-com bubble bursting but it sowed the seeds for the housing bubble and when that bubble finally burst many thought it was the end but they still had a lot of intervention up their sleeve so they dropped rates to zero started monetizing government debt and bailed out the banks and remember at that time a trillion dollar bill sounded like the end of the world nobody had ever conceived of a trillion dollar bill before over the coming years the bank bailouts and the massive deficit spending financed by the Feds sowed the seeds for the next crisis so when 2020 hit the ticking time bomb was enormous because under normal conditions the economy would have been able to handle it no problem but the seeds had long ago been planted and this time the intervention was increased scaled up yet again, again, short term rates to zero but way more debt monetization this time way more QE bailouts for everyone not just the banks and temporary Universal Basic Income this response among other things expanded the money supply by 25% and at first the wealth effect from all that new money was strong people felt like they had the money that they desperately needed and they spent it and now we're facing record levels of inflation and record asset prices now I've said in the past that the Fed can't taper they can't let interest rates go up or else the economy is insolvent but I recently did a video about how those very two things will cause a crash next year many of you called me out on this apparent contradiction and I apologize for not being clear that number one I've changed my mind a little bit but number two I'm looking at different time frames when I'm saying those two things so I did not originally think that the Fed would ever be able to tighten here now I do think they will try to start to tighten because the Fed right now sees that if they keep adding money into the economy inflation will run away from them they also feel pressure to rein in some of their assistance to the economy because of how high asset prices are so I think they absolutely will begin the process of reducing their assistance to the economy this will coincide with long-term interest rates going up because at the same time the government will be borrowing a lot more but it won't last long and it won't go near as far as they planned because the monetary contraction that will take place as a result will end up pulling the house of cards down now remember what I said about sowing the seeds for a future crash that's what they did for their entire response to 2020 they've been sowing the seeds for the next crash which will be worse and I expect this crash to happen sometime next year but the Federal Reserve and the government do have one more trick up their sleeves they have one more leveling up of intervention and assistance to try and rescue the economy from a crash the problem is that's all there is left there's no more they've got one more go bigger go home intervention assistance stimulus and the problem is that will cause the economy to overdose on stimulus so when this crash starts here are the six things that they will do in response to try and save the economy number one full-blown yield curve control number two the Federal government through the treasury probably fully absorbing the Federal Reserve number three nationalization of the entire banking system number four introducing a wealth cap number five permanent Universal Basic Income and six price controls so let's break down each one first yield curve control we have seen over the decades in evolution of interest rate control but we have not yet seen full-blown yield curve control the short end of the curve is where the Federal reserve intervenes trying to make sure those rates stay as close to zero or within their range as possible they don't yet do anything to control the exact range the exact rates of the long-term interest rates now they are buying some of those bonds which does help keep those interest rates low but they're targeting specific numbers of asset purchases not directly targeting the interest rate one of the reasons they're going to have to do this is because they're not going to have a chance to significantly raise rates by the time the next crash starts which means they won't have the room to bring rates lower on the short end like they normally do and they've always relied on that as a big tool to give the economy a boost but this time long-term rates will be higher simply because the Federal government will have to be issuing a lot more debt over the next year which is going to push interest rates higher so on that end of the curve that will give them the room to pull those rates down by buying as many of those bonds as needed to keep those rates pegged to zero to provide broad stimulus across the yield curve to the economy this brings us to number two which is something like the treasury absorbing the Federal Reserve simply because you're probably going to need to do that in order for the Federal Reserve to do full-blown yield curve control legally now you might also see just a simple amendment or even a full overhaul of the federal Reserve act to give the Federal reserve the ability to do this the reason for this is because the goal of this will be to fully monetize all government debt so they don't have to rely on market forces to be able to borrow anymore they can just rely on the money printer now they may keep that independence there or at least I the appearance of independence they'll probably absorb it into the treasury if not fully rewriting the Federal Reserve act to just make it fully under congress's control this is to unlock full fiscal policy capabilities so that the Federal government can spend any dollar necessary not have to worry about arguing about votes for debt ceiling increases oh and yeah also this would probably coincide with just a full out repeal of the debt ceiling so that through the Federal Reserve and the treasury and the lack of a debt ceiling they have the ability to just vote on where the money goes not care how much it is or whether they're running up against caps or interest rates cost of servicing debt ultimately whatever legal form it takes it will be a full merging between monetary and fiscal policy now this leads us to the third change which would be a nationalization of the banking system and the main reason for this is because banks make their money on interest rates that's what they do they lend their profit comes from interest rates and if all interest rates are pegged at zero you crush the profit capabilities of banks they don't have the ability to survive so you have to nationalize the banking system also because this will likely coincide with a severe financial crisis in the banking system as well and so this will be a way to rescue the plumbing of the financial system make sure that it continues to operate and just nationalize it pull it underneath the Fed which will probably then be also underneath the treasury and keep in mind none of these things are unprecedented in world history we've seen countless times where the banking system gets fully nationalized after a crisis in a country this leads us to number four which is a wealth cap because you can't exactly have some people becoming massively wealthy during a crisis like this if you're a politician it's not a good look and with all this spending and printing you are going to see wealth inequality explode and so they'll likely institute some sort of a wealth cap which again is not unprecedented in world history it's simply an extension of the currently proposed wealth tax and or unrealized gains tax number five Universal Basic Income again an extension of something that we're already seeing right now but this is a way to deal with the inequality that again they caused by the money printing the inequality and the poverty they'll institute universal basic income it's an extension of the child tax credit advanced payments that we see right now an extension of the stimulus checks that we saw last year and it's just the logical next step to make sure that the civil unrest doesn't find its way from Main Street to Pennsylvania avenue and finally the sixth item that we're likely to see after the crash as a response is going to be price controls because if you think the amount of money they've had to print and spend to deal with last year has been a lot just wait until they have to deal with the next crash and all that money printing will make right now the inflation that we're looking at look like child's play it'll make the current shortages look like abundance because the fact of the matter is that shortages and supply chain issues are a result of monetary expansion of inflation not the other way around and when prices start doubling or tripling you can take a guess who they're going to blame the greedy owners the greedy profit seekers and price controls will come into full swing again not unprecedented we've even seen in this country before and it will cause widespread shortages and massive supply chain failure so as you can see these are six things that haven't yet been done to the full extent though we've seen forms or smaller shadows of them as a result of this last crisis and given the fact that we know it goes crash intervention bigger crash bigger intervention bigger crash bigger intervention we can guess that the next crash is going to be bigger and require much more intervention than we just had meaning that these six are likely what will be put in place to deal with it next time around so to summarize the timeline it looks like they are going to try to start to tighten at the end of this year that will end up triggering a crash sometime next year the response will then be to throw everything at the wall try every form of intervention possible and the economy will then overdose on hyperinflation and then in the aftermath when the old economy is finally gone a new one can be rebuilt from the ground up based on free markets volunteerism private property rights and sound money as always really appreciate you guys thank you so much for watching have a great day
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