Can this be the End of the American Empire

We're on the verge of the end of the American Empire, and I believe it will occur at a startling rate of speed. For example, in four months in 1974, we went from a situation where everything appeared to be in order to the worst recession since World War II. I believe this time will be no different because of the rate at which monetary policy is tightening and the rate at which prices are rising. 

"Explore the impact of broken global supply chains after World War II on the economy. Discover how disruptions in the supply chain reshaped industries and influenced economic recovery. Gain insights into the challenges faced and the strategies implemented to rebuild and revive global trade. Read this article for a comprehensive understanding of the post-war supply chain dynamics and their lasting effects on the global economy."

Contents

• The IMF's Warning: World Economy Faces Biggest Economic Headwinds since World War II
• The Recession of 1974: Arab Oil Embargo and Economic Consequences
• The Phenomenon of Inflation and Monetary Tightening
• The Magic Trick of the Fed's Balance Sheet and Debasing Currency
• The IMF's Warning and Tightest Monetary Conditions in History
• The Cost of Borrowing and Decreased Purchasing Power
• The 1940 Financial Crisis and Recent Similarities

My prediction is that June will be the last hike, and then they'll say, "Well, we'll just see." They'll watch as the economy begins to tank, and then they'll think, "Well, we're not going to do QT now either." As a result, they won't start reducing the FED's balance sheet. 

Before long, we'll be talking about rate cuts, but there aren't many rates to cut because rates are nowhere, so the only option is for the housing market is already beginning to dry up, which is typically a sign that money is being printed for other purposes. 

Today is a significant occasion because just yesterday in Davos, Switzerland, the IMF stood up and warned the world economy is facing the biggest economic headwinds since World War II. The worst, and that's why it could be bad news, but depending on how you look at it, it could be very good news. 

This is about as macro as I've ever seen, and I think most people's take on it is probably wrong right now. 

The End of the American Empire

The IMF's Warning: World Economy Faces Biggest Economic Headwinds since World War II

World War II was an interesting moment because, like Covid, the entire world had been essentially trapped at home or on battlefields. When everyone returned, there was no supply of commodities and things.

Global supply chains were broken and everyone returned and started consuming again and guess what inflation went up to 13 or something maybe even higher player and that period was fascinating because interest rates went up and the economy went straight back into recession and inflation went negative because it was a massive tightening of monetary conditions you raised the cost of goods on people and didn't raise their salaries enough p 

Exactly like now, everything crashed, and we went back into recession, followed by some better times, and I'll return to the 1940s and 1950s because I think it's a really key similarity that most people miss the next time.

The last time we saw something slightly resembling this was in 1974. Many people say it's the 1970s all over again, but the inflation episode we had in the late 1970s was driven by demographics, which was the Baby Boomers entering the workforce all at once, and we had a supply shock of this oil crisis of the Arab Oil Embargo, which is not repeating now. 

What is actually more similar is 1974. 

The Recession of 1974: Arab Oil Embargo and Economic Consequences

The Arab embargo of 1974 caused the price of oil to triple, interest rates to rise, and inflation to skyrocket, with the immediate result that the economy tanked. Almost do not pass through the stock market plummeted 50 and the ism survey, which is a strong guide to the business cycle, whenever it goes below 50 indicates that the economy is weakening.

You're saying that the 1970s are now pretty close yes and inflation fell in 1974 after people are still believing inflation goes on forever it did not and it did not in the 1940s either then the next one up is 1984. 

A recession comes at about 47 it hit 30 which was the lowest in all of history and it happened in a space of four months based on exactly the same kind of setup we've got now. 

The dollar was quite strong, much like it is now, interest rates were rising, inflation was high, and everyone was afraid of looking back and saying, "Oh, we don't want the early 1980s late 1970s." This was a problem with global trade.

Again the inflation price increases are so Volcker was tightening rates too much and the economy collapsed. It didn't go into recession because the FED quickly started cutting rates, but the dollar went up much more and caused a lot more problems when we ended up with a plaza record in 1985 when everyone had to stop the dollar going up from destroying the global economy. The next time we see something similar was in 2008.

The Phenomenon of Inflation and Monetary Tightening

If you recall, in 2018 the oil price was at 147, inflation was 6%, and the FED had been reducing that since the economy was collapsing. High inflation caused the FED to raise rates in an effort to tighten the balance sheet, but the result was that the economy soon recovered. 

Okay, what's up with this phenomenon and why does everyone extrapolate inflation to infinity? 

As a result of our tightening financial conditions, consumption actually declines. For regular people, this means that the cost of your mortgage has increased at the quickest rate in history. Since mortgage rates have never increased this quickly in a year, any money you've borrowed has just become more expensive, and your salaries haven't kept up with the cost of even the most basic necessities, like food. 

Therefore, you start to feel poorer and consume less and less of other things as a result. People that hurried into homes in 2020 and 2021 overextended themselves, and as a result, their rates increased. 

All of these factors, along with the rise in the dollar, which is a sign of monetary tightening, would suggest that the ism is returning to 30 points, which is where it was in 1974. This is a terrifying possibility, and it raises the possibility that, if we're not careful, we could experience a very sharp, nasty recession.

We've got the setup that we've seen many times in the past, we've got the forward-looking indicators this monetary tightening suggesting we've got some real pain to come, and then the anecdotal evidence we're seeing all the tech companies who were bulletproof laying off people and giving earnings warnings because everyone can't raise prices, so it could be a short recession of about 5% GDP, but we'll get to that in a moment. 

Consequently, their margins are decreasing and consumers have overextended. Amazon complained that "we had hired too many individuals," as they were one of our top American employers. 

Okay, this is not good, but higher prices are the result of higher prices, and that is what has happened. Everyone is asking themselves, "What's going to break when stuff like this happens the market goes down, something's going to break," and they are asking, 

"What bank is it? What hedge fund is it?" But the real answer is that the economy has just broken, and the FED will need to pivot, according to what the IMF said yesterday.

They're saying, and it's true, that the monetary conditions we've placed on businesses and individuals are the tightest in history. Additionally, China is slowing down quickly due to lockdowns, and that country has also been experiencing recession. Europe is also dealing with a war and the energy transition, so there is no longer any hope for global growth. The question is, how bad can things get? Let's look at some hypothetical situations.

The Magic Trick of the Fed's Balance Sheet and Debasing Currency

Let me ask, according to the technical definition of a recession, it is defined as two consecutive quarters of negative growth. For you and I, this means a loss of jobs and a decrease in net worth because a recession is accompanied by falling asset prices, which raises the possibility of sliding into a depression. I don't think that can happen right now, though. 

I never state anything with certainty, therefore I'm talking probability here. 

The FED balance sheet contains a piece of magic, which is why. 

The FED balance sheet hides all bad things because when they print money, along with the majority of other central banks, it reduces the purchasing power of the dollar. While most people mistakenly believe that this will result in inflation, it actually causes the debasement of currency, which causes all of these expensive assets, including stocks, real estate, gold, and cryptocurrency, to rise sharply but at the same time. 

So that optically can change everything because suddenly all of these things go up everyone feels okay and it changes the outcome people are still generally worse off but it's a trick and I think that trick gets played again pretty soon this time. 

I think the trick gets played in a different way which was the other Genie that came out of the bottle in 2020 which the Europeans are doing now some states in the US are doing what Japan is doing India is doing which is d.

Regardless of our political or economic views,

 This is what is going to happen, 

The IMF's Warning and Tightest Monetary Conditions in History

So we must judge it through that lens rather than how we would like it to be but what it will be and what the chances are. When I first heard you talking about the hurt row, I thought you went to the dark side now with MMT UBI and all that stuff, which is too many Marxist, but you're also looking from the humanitarian side. 

“Take a look at the emptying office buildings because individuals are choosing not to return to their jobs; after all, this is not your typical recession,” according to Apple. 

If you're saying that a recession means a loss of jobs, as is the case with Amazon's layoffs, what happens to real estate wherever there is an Amazon office? 

This is the ripple effect, which is why I'm saying that was one of the biggest announcements I've ever heard. According to the IMF, the world is facing one of the biggest economic challenges since World War II. However, one thing to keep in mind is that the IMF also notes that the United States is currently experiencing one of the recession.

I'm really glad you started with history because macroeconomics is history and you have to look back in time and every time people did this for us was the Chinese they paid the price. 

So here's a penny, it's copper and in 1964 dimes quarters and half dollars became copper and that's what you were talking about the basement and I think we're paying the price for it because I'm really glad you started with history.

The silver coin, indeed you basically debase the currency by turning a copper coin into a silver coin, which the Romans and Chinese already did since, remember, the subprime currency. It simply works as follows: 

1. If you're extremely thirsty and I have a bottle of water, you'll pay whatever you want for it. If I have five bottles of water, you'll pay nothing. 

2. You're pondering something. If I say, "Here are a million bottles of water you don't want any of it because there is too much water now it has no scarcity so if you make too much of something it becomes less valuable so if DaVinci had created 50 million pieces of art guess what they are worthless and so it is that concept and what it does is if something gets devalued versus something else, it causes the value of that thing to decrease. 

3. Real estate prices generally rise as opposed to if they were balancing because it's a relatively scarce asset, just like gold. As a result, the stock market rises. We're not actually producing more shares in the s p; rather, we're buying them back and producing fewer of them.

4. Similar to cryptocurrency, so that's the phenomenon. It depends on how quickly they deploy the balance sheet because this balance sheet magic optically changes markets and if markets go up then household net worth stabilizes and spending comes back companies stop laying people off so it's actually a bit of a magic trick it comes down you know they're all saying the ball goes up the stairs the bear goes out the window the bear is about to go out the window the question is when does a ball go up the stairs. 

The Cost of Borrowing and Decreased Purchasing Power

Through a scenario like 2000, which was a typical old-school recession where equity markets unwound excesses, the bear market lasted for about 18 months, and then the FED kept cutting rates until it stabilized. 

However, if we look at 2008, which was the next recession, as soon as the FED used the FED balance sheet, we pretty much stopped on its tracks really quite quickly after they did that. They cut rates first, which didn't really help because the banks had seized up, then 

Then they repeated it in 2010—12—16—and—18—which was the Powell pivot, when they switched from hiking to saying, "Oh my God, we have to cut spending." Trump yelled at the individual, "You said you could cut this out you're killing my economy that's right the inflation had increased the power like well I need to do this but the economy cannot take higher rates because everyone is so in debt and everyone is so old." 

Employers aren't hiring again, therefore all these REITs (real estate investment trusts) possess all these office buildings, but the FED has never intervened. I believe there is currently a $30 million debt at 200 trillion dollars off balance sheet, and they keep decreasing rates, but the question is...

Q. Given the circumstances, is it possible to continue doing what they are doing? 

If so, the situation will quickly bring us back to the 1940s, and you will perish due to supply chain problems. Because of covert and all of this, your wages won't keep up, and everything is leveraged, so we can destroy household net worth. If you take out loans against houses, loans against stocks, and loans on top of loans, you'll let the collateral drop and blow everything up. But isn't that what they're doing when they say they're going to pay off your student loan debt?

What they're trying to do is reduce the debt through financial repression, which is basically having inflation run slightly higher so that you have than interest rates. In order to do this, they want to reduce the real value of the debt, so if you think back to your parents' purchase price for a home and the mortgage they had, the mortgage seems laughable because over time inflation raised the value of the debt. 

The point is that you either have a fiscal stimulus, such as the Republican deal, which has a fiscal similar to cut taxes and we'll put some spending, but what happens is that it doesn't go to the people who are the worst off its creating more debt rather than reducing it. 

I believe people have thought that maybe we should just try and give it directly to the people who are most affected okay those are the two choices or you do nothing which is too late because there is too much debt so you can't let the system clear anymore the balance sheet, 

because all of the expensive assets keep going up because they keep printing money so let's get richer but doing this blanket fiscal stimulus is hard because the rich get richer again so I think people have thought well maybe we should just try and give it directly to the people who are most 

OK, you simply experience a recession. 

The 1940 Financial Crisis and Recent Similarities

Let's look back to the 1940s to see how awful it was then. This was the arrangement that caused the worst supply chain problems. Everyone quits borrowing as much money. The world is 400 of GDP in debt. The world has never been this in debt in all of economic history. big inflation everyone returning to the market so, what happened was that the economy crashed, then interest rates fell and steadied because the FED stabilized them, and inflation was running somewhat

Real rates mean you're going to make a lot of money in the real estate market, so negative real rates become very good for assets. Although the 1940s and 1950s saw a massive economic boom, what we actually got was the value of the war debt eroding due to this financial repression. 

Due to the need to rebuild after the war and the factories that were being built by businesses, the value of assets like homes and the equity market increased by 900 points during that time. Therefore, if you consider that businesses will be reconstructing manufacturing in the United States or in Europe rather than in China, it will provide some stimulus. 

Although there are no employment because to the firms' use of robots, the government will nonetheless provide economic stimulus. 

As we've discussed, interest rates will continue to be low, inflation will be under control but slightly higher than it has been, and this leads to a period of stability and boom because of all the technological advancements and significant global events.

Imagine how it must have felt in 1948 when all you could see was the end of the world and then you got this massive inflation; you just thought this was the worst thing that could possibly happen. That could be the case, and I think that is still my optimistic outcome that we sort of muddle through this in a way that we don't expect. 

What actually resulted from it was quite different. The rise of technology, the US's emergence as a major superpower, the European and Japanese Revolutions, as well as the Bretton Woods Agreement, which saw the dollar accepted as the world's reserve currency, were all very positive developments for the US.

 Everything from the Geneva Convention to the IMF to the World Bank to the United Nations all arrived in that time period 47 at the same time; this is what they're sort of hinting to, but the Great Reset will cause everything to alter once more.

We are currently on the fourth turning, to be precise. This incident might be the culmination of the fourth turning, or it might just be a new stage. As of 2008–2020, the world is moving in the way we all know it must go, therefore we need to stop what we're doing and change what we're doing. 

I believe that the bond market is the true indicator of economic health. Participants in the bond market have two tasks to complete. Only two factors drive the bond market: what is the future rate of inflation and what is the current pace of economic growth in the stock markets, such as earnings and this and that and all that 

If we're right here and you've got cash, we're going to see this big whoosh, and it probably means that the economy and asset prices there are certain things it's going to set up for what we're looking for if you want to generate wealth, now is the time to act. Yes, this is the perfect moment. 

Macroeconomics is via history, and you know the collapse of Empires and all this, and I believe we're collapsing right now. You know that's a big concern because all Cycles run through up till it's roughly the age of a human being. Ten years ten years ten years 

You see, that one also develops, and everything else changes. Weak leadership is a hallmark of the fourth training, and today is no exception, but those operating on yesterday's concepts are the ones who suffer. Earlier, we discussed how bull markets make fools look wise. 

You know, you could be really stupid and invest in Apple and become extremely wealthy or in Bitcoin and think, "Oh my God, I'm rich, I'm smart," before the bear market exposes just how stupid you are. For this reason, Reil predicts that the crash will occur quickly and that all the stupid people who believe they are intelligent will do so. 

I think the most important lesson from today's lesson is that the bull has been moving up the stairs for a while and is about to go out the window so that's what happens in Davao, Switzerland when the IMF says "we're going to face the biggest economic headwinds" and then suddenly I can't believe that.

FAQ

What are the similarities between the current economic situation and the post-World War II era?

The current economic situation shares several similarities with the post-World War II era. Both periods experienced a significant disruption to global supply chains, resulting in a shortage of commodities and goods. Inflation rates increased, and monetary conditions tightened as interest rates rose. The economy initially rebounded after the war, followed by a recession caused by the tightening of monetary conditions. Similarly, in the present, the world is facing supply chain disruptions and rising inflation. There is a concern of monetary tightening and the potential for a recession. These parallels highlight the potential challenges and risks the global economy is currently navigating.

How did the broken global supply chains after World War II impact the economy?

The broken global supply chains after World War II had a significant impact on the economy. The war had left infrastructure and transportation networks devastated, disrupting the flow of goods and services across borders. This disruption led to shortages of essential goods, higher prices, and reduced consumer purchasing power. The reconstruction efforts required significant investment and time, further straining economies. However, this situation also spurred innovation and encouraged countries to develop self-sufficiency in key industries. Over time, the rebuilding of supply chains and the establishment of international organizations like the United Nations and the General Agreement on Tariffs and Trade (GATT) helped restore global trade and fostered economic recovery and growth.

What were the economic consequences of the Arab Oil Embargo in 1974?

The Arab Oil Embargo of 1974 had profound economic consequences. The Organization of Arab Petroleum Exporting Countries (OAPEC) implemented an oil embargo against countries that supported Israel in the Yom Kippur War. The embargo resulted in a sharp increase in oil prices, leading to a global energy crisis. This crisis caused severe disruptions in economies heavily dependent on oil imports, triggering stagflation characterized by high inflation and stagnant economic growth. Industries reliant on cheap energy suffered, while transportation costs soared, impacting global trade. It also prompted efforts to diversify energy sources and increase energy efficiency, shaping long-term energy policies in many countries.

How did the tightening of monetary conditions in the past lead to recessions?

The tightening of monetary conditions in the past has often been associated with recessions. Central banks use monetary policy tools, such as increasing interest rates or reducing the money supply, to control inflation and manage the economy. When monetary conditions tighten, borrowing becomes more expensive, which can lead to decreased consumer spending and business investment. Higher interest rates can also reduce housing demand and dampen economic activity. These factors can create a downward spiral, as reduced spending and investment can result in decreased production, job losses, and overall economic contraction. The link between monetary tightening and recessions highlights the delicate balance required in managing monetary policy to avoid undue economic downturns.

What role does inflation play in the current economic situation?

Inflation plays a significant role in the current economic situation. Many countries are experiencing rising inflation rates due to a variety of factors, such as increased demand, supply chain disruptions, and higher input costs. Inflation erodes purchasing power and can impact consumer spending patterns, leading to changes in consumption and saving behavior. It also affects businesses by raising production costs and reducing profit margins. Central banks closely monitor inflation and adjust monetary policy accordingly. If inflation becomes excessive, central banks may raise interest rates or implement other measures to control it. Managing inflation is crucial for maintaining price stability and sustaining economic growth.

How does monetary tightening affect consumption and mortgage rates?

Monetary tightening, typically carried out by central banks, has implications for both consumption and mortgage rates. When monetary policy is tightened, interest rates tend to rise, making borrowing more expensive. This increase in borrowing costs affects mortgage rates, making it more costly for individuals to finance home purchases. Higher mortgage rates can reduce housing demand and affordability, impacting the real estate market. Additionally, when interest rates rise, the cost of borrowing for consumers and businesses increases, which can lead to reduced consumption and investment. As a result, monetary tightening often curbs consumer spending and can contribute to an overall slowdown in economic activity.

How does the debasement of currency impact asset prices?

The debasement of currency, which refers to a deliberate reduction in the value or purchasing power of a currency, can have a significant impact on asset prices. When a currency is debased, it typically leads to inflation as the cost of goods and services increases. Inflation erodes the value of money, reducing its purchasing power. As a result, investors seek to preserve their wealth by investing in assets that are expected to retain or increase in value, such as real estate, stocks, or commodities. This increased demand for assets can drive up their prices, creating asset price inflation. However, it's important to note that the relationship between currency debasement and asset prices is complex and can be influenced by various other factors in the economy.

How do recessions affect job losses and real estate prices?

Recessions have a profound impact on job losses and real estate prices. During recessions, businesses face decreased demand and reduced revenues, often leading to cost-cutting measures, including layoffs and job losses. Unemployment rates tend to rise as a result, as companies downsize or close down altogether. This can lead to financial hardship for individuals and negatively impact consumer confidence and spending. Furthermore, recessions tend to put downward pressure on real estate prices. With lower demand and tightened credit conditions, housing sales decline, causing prices to soften or even decline. The combination of job losses and reduced real estate prices can create a challenging economic environment during recessions.

What are the possible outcomes and challenges the economy may face in the near future?

The near future presents several possible outcomes and challenges for the economy. One significant concern is the ongoing impact of the COVID-19 pandemic. Depending on the effectiveness of vaccination efforts and containment measures, economies may experience varying degrees of recovery or face setbacks from new variants. Additionally, the transition to a post-pandemic economy could be accompanied by labor market disruptions, such as job reallocation and reskilling challenges. Inflationary pressures, as a result of pent-up demand and supply chain issues, may also pose a challenge. Furthermore, geopolitical tensions, trade disputes, and climate change-related risks can affect global economic stability. Governments and policymakers will need to navigate these uncertainties to support sustainable growth and address social and environmental concerns.