The FED is like your grandparents who gave you extra allowance money.
Your PARENTS are like the media, economic & political pundits shaming them for spoiling you.
The truth is both are right.
Time for a thread 👇👇👇
Your PARENTS are like the media, economic & political pundits shaming them for spoiling you.
The truth is both are right.
Time for a thread 👇👇👇
Sometimes the economy needs an extra BOOST OF MONEY, especially during tough economic times.
BUT this extra money causes unintended consequences:
- We become DEPENDENT on it
- We end up in DEBT because of it
- We create INFLATION that destroys it
BUT this extra money causes unintended consequences:
- We become DEPENDENT on it
- We end up in DEBT because of it
- We create INFLATION that destroys it
Why should you care?
Because we are in uncharted territory.
The FED has never printed this much money.
In many ways, though, they didn’t have a choice.
The alternative was to let the economy and stock market crash — have a prolonged recession or potentially a depression.
Because we are in uncharted territory.
The FED has never printed this much money.
In many ways, though, they didn’t have a choice.
The alternative was to let the economy and stock market crash — have a prolonged recession or potentially a depression.
This week, let’s break down the FED:
1. FED 👉 Their Mission
2. INFLATION, INTEREST RATES & DEBT 👉 Invisible Killers & House of Cards
Let’s get started!
1. FED 👉 Their Mission
2. INFLATION, INTEREST RATES & DEBT 👉 Invisible Killers & House of Cards
Let’s get started!
1.1/ FED: Mission
Every 8 weeks for 2 days, the market acts like a deer in headlights hanging on to every word of 7 people in suits.
These meetings are important.
They affect everything from your mortgage to the cost of that delicious Big Mac at McDonald’s.
Every 8 weeks for 2 days, the market acts like a deer in headlights hanging on to every word of 7 people in suits.
These meetings are important.
They affect everything from your mortgage to the cost of that delicious Big Mac at McDonald’s.
1.2/ What is the FED?
The FED was invented 108 years ago with a mission to control the amount of money in the economy — especially during PANICS & CRISES.
The FED is the central bank of the United States aka the BANKER TO ALL THE BANKS.
They keep the economy healthy.
The FED was invented 108 years ago with a mission to control the amount of money in the economy — especially during PANICS & CRISES.
The FED is the central bank of the United States aka the BANKER TO ALL THE BANKS.
They keep the economy healthy.
1.3/ What is the FED?
Think of the economy as a spaceship with the FED as the captain. They have to keep the right amount of fuel (money) in the tank to keep the ship (the economy) sailing smoothly.
Too much fuel and the ship will explode. Too little and the ship will crash.
Think of the economy as a spaceship with the FED as the captain. They have to keep the right amount of fuel (money) in the tank to keep the ship (the economy) sailing smoothly.
Too much fuel and the ship will explode. Too little and the ship will crash.
1.4/ SPACESHIP
To control the FUEL (MONEY), the captain has a:
Gas Pedal: Buy Bonds, Lower Rates
Brake Pedal: Sell Bonds, Hike Rates
It’s a constant dance between GAS and BRAKE to get this journey right.
To control the FUEL (MONEY), the captain has a:
Gas Pedal: Buy Bonds, Lower Rates
Brake Pedal: Sell Bonds, Hike Rates
It’s a constant dance between GAS and BRAKE to get this journey right.
1.5/ What's the point?
The point of the FED meeting every 8 weeks is to communicate to the market how well the ship is flying and which pedal they will be hitting soon.
By analyzing every word the FED says, Wall Street tries to gain an edge and adjust their investments.
The point of the FED meeting every 8 weeks is to communicate to the market how well the ship is flying and which pedal they will be hitting soon.
By analyzing every word the FED says, Wall Street tries to gain an edge and adjust their investments.
1.6/ GAS & BRAKE
These pedals have limitations. Because at a certain point the FED is pushing on a string, it has to turn for help to its co-pilot, the Government, which has its own pedals.
GAS: Stimulus, Spending & Lower Taxes
BRAKE: Reduce Stimulus, Spending & Raise Taxes
These pedals have limitations. Because at a certain point the FED is pushing on a string, it has to turn for help to its co-pilot, the Government, which has its own pedals.
GAS: Stimulus, Spending & Lower Taxes
BRAKE: Reduce Stimulus, Spending & Raise Taxes
2.1/ DEBT, INFLATION, INTEREST RATES & TAXES
There’s a famous saying ‘Nothing is certain except for death and taxes’…
When it comes to the economy, it’s DEBT & TAXES.
There’s a famous saying ‘Nothing is certain except for death and taxes’…
When it comes to the economy, it’s DEBT & TAXES.
2.2/ ALIENS?
Although the video below is a joke, there is a nugget of truth.
The entire world is in a lot of debt and at the end of the day we all borrow from each other. So if we are all in debt together, what can really go wrong?
Don’t we always just find a solution?
Although the video below is a joke, there is a nugget of truth.
The entire world is in a lot of debt and at the end of the day we all borrow from each other. So if we are all in debt together, what can really go wrong?
Don’t we always just find a solution?
2.3/ MASSIVE DEBT
The U.S has the biggest debt load in the world, currently +$28 trillion. To visualize it, that’s 28 groups of 631-mile-high stacks of $100 bills.
To see it climbing in real-time, click the link below.
usdebtclock.org
The U.S has the biggest debt load in the world, currently +$28 trillion. To visualize it, that’s 28 groups of 631-mile-high stacks of $100 bills.
To see it climbing in real-time, click the link below.
usdebtclock.org
2.4/ TO WHO?
But even more scary is the relative number. Today, the US deficit is at 16% of GDP, the HIGHEST since World War II.
So, who does the U.S owe all this money to?
25% to foreign countries
75% to ourselves: the public, pension funds & other U.S government agencies
But even more scary is the relative number. Today, the US deficit is at 16% of GDP, the HIGHEST since World War II.
So, who does the U.S owe all this money to?
25% to foreign countries
75% to ourselves: the public, pension funds & other U.S government agencies
2.5/ THE BOTTOM LINE
The bottom line is, to keep people wanting to buy & hold U.S debt, they will need to:
Increase INTEREST RATES (FED):
Higher rates typically mean higher returns, which helps entice lenders.
The bottom line is, to keep people wanting to buy & hold U.S debt, they will need to:
Increase INTEREST RATES (FED):
Higher rates typically mean higher returns, which helps entice lenders.
2.6/ THE BOTTOM LINE
Increases TAXES (Government):
To show that the U.S has a plan to pay down the debt, President Biden this week announced plans for the first MAJOR tax hike in American history since 1993. Good news: it’s mainly focused on taxing the wealthy.
Increases TAXES (Government):
To show that the U.S has a plan to pay down the debt, President Biden this week announced plans for the first MAJOR tax hike in American history since 1993. Good news: it’s mainly focused on taxing the wealthy.
2.7/ THE INVISIBLE KILLER
For now, though, the FED said rates are staying lower for longer. And there’s an important consequence of doing so… potentially more INFLATION.
Let’s check in with our Chartered FinMEME Analyst Dr. Patel on what he thinks inflation could do:
For now, though, the FED said rates are staying lower for longer. And there’s an important consequence of doing so… potentially more INFLATION.
Let’s check in with our Chartered FinMEME Analyst Dr. Patel on what he thinks inflation could do:
3.1/ A DOCTOR’S DIAGNOSIS
Although crazy on his predictions, Dr. Patel drives the point home, inflation makes things more expensive and therefore every dollar you hold today is losing value.
Although crazy on his predictions, Dr. Patel drives the point home, inflation makes things more expensive and therefore every dollar you hold today is losing value.
3.2/ CPI?
Although the FED says there isn’t much inflation yet, they used the CPI as their yardstick. I don’t believe that’s a good measure.
It leaves out key things like the price of homes (now at record highs), using the cost of rents instead.
Although the FED says there isn’t much inflation yet, they used the CPI as their yardstick. I don’t believe that’s a good measure.
It leaves out key things like the price of homes (now at record highs), using the cost of rents instead.
3.3/ DEVALUED DEBT
The good news is, inflation also makes every dollar of debt worth less. This means as the U.S prints more money and inflation increases, that debt is being devalued, too.
So if they can deflate their debt and inflate their assets, they become richer.
The good news is, inflation also makes every dollar of debt worth less. This means as the U.S prints more money and inflation increases, that debt is being devalued, too.
So if they can deflate their debt and inflate their assets, they become richer.
3.4/ Real Growth.
If the US can grow their economy (5-7%) faster than inflation (3%) then they can outgrow the debt.
Thankfully, 75% of the U.S debt is held internally.
Countries like Zimbabwe that became too dependent on foreign debt holders are the ones that got in trouble.
If the US can grow their economy (5-7%) faster than inflation (3%) then they can outgrow the debt.
Thankfully, 75% of the U.S debt is held internally.
Countries like Zimbabwe that became too dependent on foreign debt holders are the ones that got in trouble.
4/ GRIT NEWSLETTER
Every week I write a newsletter to +18k investors including hedge funds, pension funds, investment advisors & billionaires.
SUBSCRIBE to see how we’re playing this! 👇
gritcapital.substack.com/welcome
Every week I write a newsletter to +18k investors including hedge funds, pension funds, investment advisors & billionaires.
SUBSCRIBE to see how we’re playing this! 👇
gritcapital.substack.com/welcome
5/ YOUTUBE
SUBSCRIBE to my YouTube channel for more insights!
Check it out:
SUBSCRIBE to my YouTube channel for more insights!
Check it out:
• • •
Missing some Tweet in this thread? You can try to
force a refresh
