Thread by @BusinessInsider

The Federal Reserve spent 12 years creating an “everything bubble” … and now it has to pop it.

@CLeonardNews breaks down what exactly that means for financial markets and average Americans — and who the winners and losers will likely be.👇

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Inflation is running at 7% right now, the highest level since the early 1980s.

When left unchecked, inflation can create an economically ruinous and socially destabilizing spiral, and most people agree on the need to prevent that.

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The Fed really wants you to know that it has all the tools it needs to curb inflation.

And that’s true, technically. But these tools could create a disaster — one that would be even more catastrophic due to the Fed’s own policies over the past 12 years.

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One of the Fed's main jobs is to control how much money is sloshing around the economy.

Between late 2008 and mid-2014, it injected 3 trillion dollars into the system. At the same time, in an unprecedented move, it kept interest rates pegged at zero.

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This approach means that all sorts of investors — from average Americans saving for retirement to complex hedge funds — have scrambled to earn what they need by putting their money into riskier investments.

This, in turn, created the "everything bubble."

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Usually, asset bubbles pop up in certain segments of the economy, like housing. But traders are worried that the scramble has pushed so much money into risky assets that the bubbles are everywhere at once.

That's the source of the Fed's current dilemma.

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Since 2009, every time the Fed has tried to ease up on this firehose of cash or started to raise interest rates, it's lost its nerve and reversed course. But now, inflation is forcing it to tighten the money supply.

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When interest rates go up, investors can start earning more money in safe havens and pull back from the risky investments.

And when that happens … bubbles can pop.

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The result will be a reordering of the economic system and carnage in markets for stocks, bonds, and corporate debt.

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But as weary American workers already know, the chaos in financial markets will be quickly transmitted to the real economy.

And if the Fed really does follow through on its promise to hike rates, we'll soon see who the winners and losers are.

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If history is any guide, the winners will be the Wall Street powerhouses and the losers will be the people who earn a living by getting a paycheck, rather than owning assets.

That is, a lot of average Americans.

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This large group of Americans suffered the worst toll of the 2008 crash, the decade of weak growth that followed, and the turmoil of the pandemic. Now it seems inevitable that they will have to withstand another blow.

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To read more about what popping the “everything bubble” means for tech stocks, corporate debt and emerging-market debt, subscribe to @thisisinsider.

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