The Federal Reserve is in the process of raising interest rates, which will, by definition, improve the U.S. economy by increasing the value of the U.S. Dollar. Crypto-currencies, of course, do not benefit from this improvement. While Bitcoin is created by the users of the system, Fiat currency is created by the Fed, as fiat currency is created out of nothing.
Over the last few decades the Fed has been printing trillions of dollars, creating a massive bubble in the US economy. But it seems now that the bubble is starting to burst: How much of a bubble is it? Is the Fed really ready to crash the US economy? In this post we’ll discuss the Fed and how it might crash the markets, as well as what we can do to prepare for the change.Allianz chief economic adviser Mohamed El-Erian, who is by far one of my favorite market pundits, was on CNBC yesterday explaining how Fed officials have basically painted themselves into a corner with their “backward looking monetary new framework” that will make it very difficult for them to take their proverbial foot off the pedal. In other words, by continuously repeating that “inflation will be transitory” (read: temporary) and that they’re “not thinking about raising rates,” Fed officials have made it very difficult for themselves to act swiftly and effectively. Usually, the central bank’s best tool to thwart inflation would be to signal that they are about to raise rates, but at this point, any such talk would certainly spook the markets. Let’s ignore for now the absurdity of the Fed trying to sell the world on the idea that inflation will be transitory when the dollars they’re printing are clearly permanent. Currently, the markets remain calm, because they’re betting that Fed officials would rather double down on their previous statements rather than change course and suddenly raise interest rates, an action that would certainly spook the markets. Yup, that’s what’s standing in the way of a total market meltdown, erroneous circular logic.
Along came inflation
But wait… there’s more…. A few hours ago, the U.S. reported further evidence that inflation has reached dire levels. The producer price index (PPI), which measures the average prices of goods and services produced, rose a dismal 6.6% during the 12-month period ending in May. This was the greatest figure in the history of this particular measure (the 12-month PPI), which the Bureau of Labor Statistics first started calculating in 2010. Diligent readers will no doubt recall that last week we covered the consumer price index (CPI) reading, which was reported at 5%. This was the highest level since the great financial crisis. If you’re not familiar with these acronyms though, CPI or PPI, just know that they’re both BS. As Kyle Bass, the founder & chief investment officer of Hayman Capital, scrupulously opined, the actual inflation rate at this time is more like 12%. He stated this after the Fed increased the money supply by roughly 34% over the last 14 months. The thing is that another worrying metric came out today. The retail sales figures show that despite all the new money and the dissipating virus, the economy isn’t even that hot. This will have to be a topic of discussion in the upcoming Fed meeting tomorrow, where they will undoubtedly be asking themselves whether the juice is worth the squeeze. Perhaps now we can come to understand this seemingly confusing headline. … It’s not that Jamie Dimon wants to hold cash so that it will lose its value. Instead, given the evidence, he’s expecting that the Fed officials will have to change their tune and hike rates in order to stave off this massive amount of inflation. Sure, it will likely harm the markets, but the damage that would likely happen to the economy if they don’t take swift action could be a lot worse. So, having this kind of cash on hand would be great for buying the dip on such an event. It only makes sense.
What about bitcoin?
The last economist on our list is the hedge fund billionaire Paul Tudor Jones, a known bitcoin proponent who seems to be on the opposite end of Dimon’s trade. He’ll want to see what the Fed does tomorrow of course, but according to the legend, if the central bank’s officials continue to talk down inflation and fail to take action, it will be “a green light to bet heavily on every inflation trade.” He also managed to tease out the WallStreetBets crowd by hinting that commodities would be a killer investment should the Fed allow inflation to run rampant. So it would seem that inaction from central bank officials could very well send bitcoin and other cryptocurrencies straight to the moon. On the other hand, what might be the reaction from digital assets given a hawkish Fed tomorrow? If the key stakeholders show concern about inflation and talk about raising interest rates, we can assume it will not be good for stocks. However, the possible effect on crypto is less clear-cut. My feeling is that after the close to 50% pullback we experienced last month, digital assets are not nearly as overvalued as the stock market is right now. Bitcoin, in particular, is seen as a hedge against Fed money printing (and the inflation it could cause) in the eyes of many. So if the Fed does crash the market, there’s a real chance that bitcoin, and possibly other cryptocurrencies, may be seen as safe havens. I’d like to give a special shoutout to everyone who reads to the end.
Frequently Asked Questions
Is the stock market predicted to crash in 2020?
The stock market is a complex system comprised of thousands of companies that do everything from sell widgets to develop new technologies. To a large extent each company is regulated by the government and has their own board of directors and shareholders that are responsible for making all the decisions. The stock market is the biggest market in the world but also the most volatile, often exhibiting wild swings both up and down. This volatility is what makes it so attractive to traders, but it also increases the risk of a crash. The Federal Reserve is set to meet in two weeks, and is expected to raise interest rates for the first time in a decade. This will likely be the final meeting of Janet Yellen as head of the Fed, as her tenure ends in February. Many pundits expect the Fed to raise rates further, with some even predicting a rate hike of 3 or 4 percent. The Fed’s motives are to keep a tight rein on inflation, but many believe that interest rates are already low enough as it is, and that the Fed should not raise rates further.
How bad is the Stock Market Crash 2020?
What is my personal view on the next Crash? Well, I think it will be severe and devastating for the economy. I think, however, the Fed will be able to prevent a financial meltdown, just as they did in 2008. The Banks are strong and the Fed is their savior. In recent years there has been a lot of talk about the Fed causing a crash in the stock market in the future. This has been due to the fact that the Fed is trying to raise interest rates in order to slow down the economy, so that they can eventually get to zero percent and no longer have to make any interest payments. If the Fed were to raise rates, and the stock market did crash, the Federal Reserve’s credibility would be automatically lowered and the next rate hike would be seen as a mistake. This may cause the Fed to raise rates more quickly, which may cause a crash in the stock market, and lead to a global financial crash.
Do you lose all your money if the stock market crashes?
Cryptocurrencies are a new and exciting investment opportunity. If you’ve never heard of them, you’re not alone – most people haven’t. But, if you’re curious to learn more about cryptocurrencies, you’re not alone, either. And while there is no shortage of people who want to invest in them, they’re also facing a unique challenge: the Fed. The markets are going crazy today, and I’m sure everyone is trying to decide whether it is a good time to buy or sell. After all, it’s a good time to sell if the stock market is down, and it’s a good time to buy if the stock market is up. The problem is that this is a complicated problem, and even if you decide that it is or isn’t a good time to buy or sell, you may or may not be able to determine what exactly is going on in the markets. What many people don’t realize is that there is a low probability of the stock market crash.
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