Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

The Everything Bubble Is Going to Pop

  by    0   2

We talk a lot about bubbles in the economy.

Over the last few weeks, we’ve discussed the stock market bubble, the housing bubble, the auto bubble and the debt bubble.

Nick Giambruno simplifies things in an article he recently wrote for the International Man. He just calls it the “everything bubble.” And he says it will pop in the near future thanks to the Federal Reserve. 

Interest rate tightening is the pin that will pop the everything bubble. After all, artificially low interest rates  blew the bubble up. As Giambruno pointed out, nearly every Federal Reserve rate-hiking cycle has ended in an economic crisis.  Specifically,  16 out of the last 19 times that the central bank has initiated a tightening policy has ended with some sort of crisis that tanked the stock market.

 

In order to understand how rate hikes pop bubbles, you need to understand how artificially low rates blow them up. Giambruno does a good job of succinctly explaining this boom-bust cycle.

To start, the Fed encourages malinvestment by suppressing interest rates lower than their natural levels. This leads companies to invest in plants, equipment, and other capital assets that only appear profitable because borrowing money is cheap. This, in turn, leads to misallocated capital – and eventually, economic loss when interest rates rise, making previously economic investments uneconomic. Think of this dynamic like a variable rate mortgage. Artificially low interest rates encourage individual home buyers to take out mortgages. If interest rates stay low, they can make the payments and maintain the illusion of solvency. But once interest rates rise, the mortgage interest payments adjust higher, making them less and less affordable until, eventually, the borrower defaults. In short, bubbles are inflated when easy money from low interest rates floods into a certain assetRate hikes do the opposite. They suck money out of the economy and pop the bubbles created from low rates.”

We’ve seen this process repeated over and over again – we had the dot-com bubble, we had the housing bubble and now we have — as Giambruno puts it — the everything bubble. Or, if you prefer to look at it another way, we have a whole slew of individual bubbles floating around in the economy.

This should come as no shock. After all, the Fed held interest rates at zero for seven years and launched three rounds of quantitative easing. (In effect, money printing.) That led to trillions of dollar created out of thin air available to blow up bubbles.

Consider this — the Fed pumped up the housing bubble that precipitated the 2008 crash with about two years of 1% interest rates.

The Fed began the current tightening cycle in December 2015. We’re already seeing rumblings in the economy. Air already appears to be leaking out of the housing bubble, the stock market bubble and the auto bubble. Peter Schiff has been saying it’s obvious the recession is coming.

Giambruno thinks so too.

The US economy and stock market are overdue for a recession and correction by any historical standard, regardless of what the Fed does. But when you add in the Fed’s current rate-hiking cycle – the same catalyst for previous bubble pops – the likelihood of a stock market crash of historic proportions, before the end of Trump’s first term, is very high.”

Giambruno said he’s not in the habit of making “doomsday” predictions. But the fact is the Fed has warped the economy more drastically than it did during the tech bubble, the housing boom or even the 1920s.  As a result, the crash will likely be much bigger.

Are you ready for it?

Gold IRA Rollover to 401k

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Yield Curve Inverts Flashing Recession Warning; Stocks Plunge

The yield on the 10-year Treasury fell below the yield on the 2-year for the first time in 12 years, stoking recession fears and tanking stock markets. Yield curve inversions have preceded all nine recessions since 1955.  This was the first time the 10-year Treasury yield has dropped below the 2-year yield since June 2007 […]

READ MORE →

China Adds 10 More Tons of Gold to Its Hoard

the country of china shown on a globeChina bought gold for the eighth straight month in July, adding another 10 tons to its rapidly growing hoard. The recent purchases boosted the People’s Bank of China’s gold reserves to 62.26 million ounces – about 1, 945 tons.  China has added about 94 tons of gold to its stash over the past eight months.

READ MORE →

The Fed Has the US Economy on Life Support

The Federal Reserve has the US economy on monetary life support and Daily Reckoning managing editor Brian Maher says it will never again breathe on its own. As hedge fund manager Kyle Bass put it, the economy is trapped within the inescapable tractor beam of zero percent interest rates.

READ MORE →

2019 Federal Budget Deficit Already Above 2018 Number

The federal government continues to spend America into a black hole and has already topped last year’s budget deficit with two months left in the fiscal year. The US budget deficit in July came in at $120 billion thanks to a surge in spending, according to data released by the Treasury Department. Uncle Sam spent […]

READ MORE →

Is the Mainstream Turning Bullish on Gold?

In a podcast a couple of weeks ago, Peter Schiff said we now have all the elements of a gold bull market. Well, it looks like the mainstream might be starting to catch on. A headline at Bloomberg on Friday proclaimed “Hedge Funds Go All-In on Gold.” According to the Bloomberg report, hedge funds increased […]

READ MORE →

Comments are closed.

Call Now