The Everything Bubble never seemed so close to explode. The stock market crash, the housing bubble burst, and the bond price collapse are likely to happen simultaneously, causing an astronomical blowup that will certainly trigger the next financial crisis. Throughout the past year, the Federal Reserve’s monetary policies managed to expand multiple bubbles at the same time. Stocks, real estate, bonds, and all sorts of speculative investments have all experienced historic inflations. Now, all of these bubbles are at the brink of deflation, and several experts are sounding the alarm for the monetary disaster the United States is about to face – one, they say, that will lead us to the Great Depression that was kicked off after the deep recession of 2008. That’s what we’re going to expose in this video.
Over the past year, the flood of liquidity and ultra-accommodative monetary policies has simultaneously inflated several bubbles across the stock, real estate and bond markets. Consequently, the result of cheap debt and an enormous amount of liquidity is the boom of household net worth as a percentage of disposable personal income.
On the other hand, while it may seem that Americans are getting more wealthy, the truth is that only a small portion of the population has benefited from these policies. That is to say, by trying to forge a wealth expansion, the Fed ended up exacerbating the wealth inequality gap, making the top 10% even richer while the majority of the population remained financially vulnerable. And this unbalanced framework is the very foundation that will lead to the deflation of the Everything Bubble.
Once again America has entered into a housing bubble territory as the persistent suppression of borrowing costs, liberal lending policies, and the constant liquidity injections have all contributed to a historical increase in home prices. A lean inventory and a mass migration trend have also made home price appreciation eclipse long-term price trends. But, of course, the current housing rally has been primarily driven by record-low mortgage rates. Therefore, all of that monetary support is about to be reversed by rising interest rates. Considering prices are remarkably up and the demand remains high, very soon there will be a rush to sell to a diminishing group of buyers. The logic of the housing bubble burst is pretty simple: given the unsustainable rise in prices, the market will be forced to a correction, and the resulting price decline will likely be equally as sharp.
When it comes to the bond market, higher interest rates pose an even bigger threat. Since yields represent a function of price, there is an inverse correlation between prices and interest rates. Thus, higher rates are translated into lower bond prices. In this case, bond price deflation will occur as a rapid increase in both rates and defaults is very likely to happen at a greater extent and at a much faster pace than the Federal Reserve can absorb.
Furthermore, it’s in the stock market that things get a lot trickier. During a “market frenzy,” as the one we’re currently witnessing, investors have to continuously overpay for assets to keep prices climbing higher. Just as in the real estate and the bond market, the problem starts when interest rates start to rise. In view of the fact that the frantic rally in corporate leverage is being supported by weak economic growth, higher rates will severely impact corporate profitability and financing activities.
Countless warnings of an imminent stock market crash are being echoed by veteran investors and financial strategists. Economist and financial analyst Harry Dent has recently alerted that stock prices could face an 80% crash. It could be “the biggest crash ever,” and it will be “the initiation of the next big economic downturn. A huge collapse is coming. This thing will be hell,” Dent predicts.
When asked why this downturn will be so harsh, the analyst stressed that “the only reason the 2008 downturn didn’t turn into a depression was that they turned on the monetary spigots so hard and blew us out of it, which kept the bubble going. They kept printing money and put it off. Now we’ve got a bigger bubble. This downturn is going to be the Great Depression that the deep recession of 2008 was falling into.”
The failure to address the collateral effects of ongoing monetary policies, given a decade of experience of mounting debt and deficits obstructing organic growth, is extremely troublesome. The U.S. economy is literally on eternal life support. And the latest events clearly show the whole system is addicted to fiscal and monetary stimulus. And as the economy is facing a relentless collapse, by extension, the stock market is approaching the end-game.