Our youth have a person that equates the stock market with the economy. The stock market is doing crazy good. We've reached all-time highs it seems like every single minute reaches an all-time high but what's the real T on this economy.
In this article we're gonna get in a little bit deeper right so we're gonna go beyond what you hear on TV we're gonna go beyond what you hear on social media and we're gonna grab them facts.
Make sure you stay until the end so you can hear my thoughts on the economy and how you can prepare in the event that we do have a recession and what kind of recession we have because it's a difference.
Welcoming back I am going to teach you all the things that you should have learned in school about money but she was too busy trying to remember the periodic table. Please be sure to subscribe because we talk about everything from personal finance to the economy to investing and it's free. I just asked for a quick little share.
How Money is Created?
We're gonna take it back a little bit and kind of understand how money is even created in this system so back in the day money was on what we call a gold standard and that basically means that in order for us to make money. We had to literally dig up and mine whatever they got to do to get gold. It had some type of value right so you have to dig up gold if you wanted a dollar again so basically go find a dollar.
Fiat Currency
Now we have fiat currency and that basically just means it goes on faith. The actual dollar only has value because we say it does and I mean think about it but what could you do with others.
You could probably throw in a fire but you can't eat it you can't do much it just has value because we say it does and that's what the fiat currency system is that we have today.
They being the Fed right our central government in the United States the Fed creates the money but how do they know how much money to print right because they can't just print money for nothing.
Those who are in accounting know if you have a debit you have to have credit so what they'll do is they'll print cash and then they will use that to buy up assets on their balance sheet. I'm already getting nerdy.
They'll basically buy government bonds corporate bonds stocks or you'll go into your banking you say you need a loan and that also would give money to creates. Basically created one day it's no specific amount that's how much debt people need to go into the money is printed for.
I know it's a little bit complicated so if you do have any questions on anything that I'm saying make sure you drop it in the comments below.
Very special people in the world have access to these money printers so to speak and they can control how much money comes into the economy as well as how much when it comes out of the economy and that money printing causes inflation.
I've said this before but it's worth repeating inflation I think is very misunderstood the idea of inflation is your purchasing power goes away little by little and the money is worthless as more printing happens.
For example, if somebody gave you a cookie you won't be like oh it's let me will be a cookie but if I come to you every day and I have 50 cookies, 50 cookies,50 cookies. Eventually, the cookie is no longer special to you it has not yet sick of cookies and now you want some cake.
So that's exactly how it works with the money supply if you keep on printing so much it becomes worthless and that's what's happening with inflation but it's a very gradual thing. It's kind of like watching paint dry. You don't notice but your money is worthless.
Lower Interest Rates
Another thing that causes inflation is lower interest rates and I know you guys have been hearing in the news or maybe not. I don't know what you do with your life but in the news, you'll hear that the interest rate has been lowered 25 basis points and you're kind of like okay what does that mean.
That is a type of monetary policy there's monetary policy and there are fiscal policies monetary policies are the money supply and the federal funds rate and basically when the Fed does that the intention is to kind of stimulate the economy.
Think about it this way when you go into a store and you see there's an item that's on sale right. Maybe somebody didn't want to buy it at $40 but I three they'll be willing to buy it and no ones buys it at $30 of you willing buy it at 20 right!
So eventually it will keep on going down and then at a certain price point it's going to look attractive to certain people and that's the same exact concept when it comes to the federal funds rate so the intention is if they lower the federal funds rate.
If the central banks lower their rate that will trickle into the economy and mortgage rates a little lower and all the loans will the lower you get the point.
Economic Ideology
The idea is that supposed to make it cheaper and that'll hopefully attract people to make a purchase however that does cause inflation and this is a simple economic ideology but basically as there is more demand for the product. The price will go up.
Another example if you have the same cookies and you sell them you are selling it for $1 and your line is out the door around the corner a 100 million people want your cookie.
You're like okay this I can't make these many cookies. I want to charge two dollars and now we might have half the people but you're making the same amount of money right. That's causes inflation your prices are rising now so I hope that makes sense right.
The interest rates going lower can actually be good for people who might have needed that to get into a house or to get a business loan or something like that but it's a sign that there is some sort of stimulation needed in the economy.
Would you put your cookies or would you put your clothes on sale if there are people buying it?
No
Why would I do that why would I intentionally make things cheaper we can put our perfectly fine buying at a higher price. That's not good business sense it's not even common sense so that alone will let you know that there is some sort of stimulation needed right.
That along with the excessive money printing which I'm not gonna get into maybe in another article. So let me know in the comments below if you would like a video type in deeper into the hole money printing thing but this gives you an idea, okay there might be some stimulation needed.
It's important to know that 70% of the growth in our economy our GDP is based on consumer spending. Back in the day, we were more manufacturing innovating creating jobs but now it's all about that credit honey and thinks about it a lot of people are not buying these things in cash.
I mean who have you heard from the last time buy a car fully in cash it happens but it's not as prevalent as it used to be.
People are going into an obscene amount of debt to buy these fancy houses and these nice cars. So don't feel bad if you don't have those fancy things because that person's probably in debt and that explains.
Why we need that stimulation?
Because if people stop spending money then things are going to start slowing down, jobs might be lost. We are heavily dependent on we're going into debt and making these purchases.
It's also important to know that the numbers that they give you might be slightly skewed and again I am NOT conspiracy if that's a word this is facts so what we use from employment is called the u3 number and it's not as accurate because it does keep out a couple of key factors.
People who are underemployed which means they don't have the job that they actually want. Maybe they're working part-time watching dishes but they'll consider that person is fully employed.
The u6 number is a bit better but again it also has some weaknesses because once you're no longer eligible for unemployment they take you out of that number two. We don't really know what the true raw unemployment number is but at least we know for sure it would be above 7% of us plus with the u6 numbers.
Recession
The technical definition of a recession is two consecutive quarters of negative growth that's the GDP that I was telling you about.
So if people start spending less and less money and it goes into the negatives and that happens for six months straight or it's technically in a recession and you have to understand people in the Federal Reserve will not announce there's a recession.
I mean you can ask people in your families you were too young but was the 2008 crisis announced before it happened no like six months way be like oh my bad yeah we see that coming but uh here it is.
You're not going to be warned if you're just watching television you're not going to really know what's going on if you're just listening that's their first level information.
It's really important to dig a little bit deeper the things that I'm telling you about are things that I find that I feel on these peoples websites that the Federal Reserve the IMF this is information you can get directly from the horse's mouth.
What's my outlook again we're not getting too nerdy there are two options that can happen we can have a Venezuela situation just extreme but it's hyperinflation once you print all that money that I mentioned beginning the money becomes worthless.
If your reaches our immigrant hyperinflation we're printing so much money that could cause prices to skyrocket and maybe not even just asset prices but like your bread, all your food can go shooting up to the stars.
Normally what people suggest you invest in precious metals let me know if you guys want an article on that but in any way, the idea is precious metals actually hold their value because you have to put work in to get these precious metals when it comes to fiat currency.
You just press a button and boom it's printed that's pretty much no value but when you're getting gold and silver.
The gold it requires mining you have to actually have people going out there and getting it so there's a value to it and gold has risen in almost every single country except the United States because we haven't reached that point yet.
Deflationary Recession
Now if we have a deflationary recession which is what we had in 2008 then it's a really good opportunity to start buying assets and the stock market will go to a more appropriate price but I think right now it's pretty overvalued.
Really say and most markets are very overvalued and in that case you could take advantage of that and start buying up some assets either way not doing anything too crazy with your money and just being very thoughtful and about okay.
Maybe you should cut back a little bit on your spending make sure you're getting a little bit more information I will tag some of my resources below that I go to for alternative news it's a little bit deeper it's backed by facts and not just words because if you listen to what you're hearing on TV.
They rarely give you charts they rarely break things down and explain things in a way that's understandable for the average person.
Conclusion
Either way, I'm not entirely sure which way we're gonna go but I would say you can be prepared both ways by making sure you have an ample amount of savings and you can consider investing in precious metals or actual physical assets.
The problem with stocks and bonds and other tangible assets is that it can go to zero right I mean that's what happened in LA and people were killing themselves literally because their 401k both just vanished into thin air.
What that means to me is you have to have true diversification which is intangible and tangible assets and that means not only just stocks and bonds your paper assets but you can have some physical assets of the business, real estate, precious metals, Bitcoin for some.
I'm not on the Bitcoin train yet but convince me otherwise but it's important to have a mix so that you are positioned well for any type of outcome.
Source: itmtrading.com/blog
