By Nick Giambruno, editor, Crisis Investing
You may recall the international spectacle Alan Greenspan sparked in 1996.
In an otherwise dull and forgettable speech, Greenspan, the Federal Reserve chairman at the time, said the now famous phrase “irrational exuberance.”
Investors thought Greenspan meant the Fed was about to raise interest rates.
Of course, Greenspan didn’t say the Fed would raise rates. Nor did he intend to signal that.
Nonetheless, investors quickly panicked.
US markets were closed at the time, but stocks in Japan and Hong Kong dropped 3%. The German stock market fell 4%. When trading started in the US the next day, the market opened down 2%.
Billions of dollars of wealth vanished in 16 hours… all because one man said two words.
That’s an absurd amount of power for one person to have.
It’s also a shameful testament about the economy. It’s based more on the Fed’s shenanigans than actual production.
After the US president, the Fed chair is the most powerful person on the planet.
By simply uttering the right words, the Fed can create or destroy trillions of dollars of wealth in both the US and abroad.
The Fed launched its latest financial atomic bomb earlier this year. Today, I’m going to show you what this means going forward…
We Are in Uncharted Territory
Throughout the 1920s, the Federal Reserve’s easy money policies helped create an enormous stock market bubble.
In August of 1929, the Fed raised interest rates and effectively ended the easy credit.
Only a few months later, the bubble burst on Black Tuesday in October 1929. The Dow lost over 12% that day. It was the most devastating stock market crash in the US up to that point. It also signaled the beginning of the Great Depression.
Fast forward to today…
The economy has been on life support since the 2008 financial crisis. The Fed has pumped it up with unprecedented amounts of “stimulus.” This has created enormous distortions and misallocations of capital that need to be flushed.
Think of the trillions of dollars in money printing programs—euphemistically called quantitative easing (QE) 1, 2, and 3.
Meanwhile, with zero and even negative interest rates in many countries, rates are the lowest they’ve been in 5,000 years of recorded human history.
This is not hyperbole. We’re really in uncharted territory. (Interest rates were never lower than 6% in ancient Greece and ranged from 4% to over 12% in ancient Rome.)
The too-big-to-fail banks are even bigger than they were in 2008. They have more derivatives, and they’re much more dangerous.
Allegedly, the Fed has been taking these actions to save the economy.
In truth, it’s warped the economy far more drastically than it did in the ‘20s. I expect the resulting crash to be that much greater.
This Won’t End Well…
The mainstream “fake news” media endlessly praises the Fed. They portray Fed employees as a bunch of selfless, benign bureaucrats trying to save the economy.
In reality, the Fed is the primary cause of most of the harmful distortions in the economy.
You can blame the Fed for…
✔ Unlimited money printing
✔ Artificially low interest rates
✔ The boom/bust cycle
✔ Bailout funds to prop up “too big to fail” institutions
✔ The War on Cash
✔ Cronyism in the financial industry
✔ Various asset bubbles
…Just to name a few.
If you ask me, the Fed is the biggest threat to your financial well-being. Period.
Today, that threat may be imminent.
In June, the Fed raised interest rates to their highest levels since the 2008 crash.
This could help prick the massive bubble in the stock and bond markets.
Moreover, even a small rate increase is a lethal threat to the US budget. The US government currently needs over $400 billion from taxpayers just to pay the interest on its debt. Tax receipts are just over $2 trillion.
If interest rates rise…
- 1%, the government would need over $600 billion to pay the interest on its debt.
- 2%, it would need over $800 billion.
- 3%, it would need $1 trillion.
- 4%, it would need over $1.2 trillion, or over half of what it currently snatches from taxpayers—again, just to pay the interest.
Clearly, none of this is sustainable.
But the facts get worse. There’s more to worry about than the financial effects. The social and political implications of the Fed’s actions are even more dangerous.
An economic depression and currency inflation (perhaps hyperinflation) are very much in the cards. These things rarely lead to anything but bigger government, less freedom, and shrinking prosperity. Sometimes they lead to much worse.
I think everyone should own some physical gold. Gold is the ultimate form of wealth insurance. It’s preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too.
Editor, Crisis Investing
P.S. Thanks in large part to the Fed, America is about to enter a crisis far more severe than what we saw in 2008–2009.
Most investors aren’t prepared for what’s coming. But Doug Casey and I know how to turn these types of situations into huge profits. And in this video, we share need-to-know information about the coming global economic meltdown.