The Iran economic shock is coming. How to protect yourself

One, two, one, two. Sounds good.

>> Sounds good.

>> And you're just waiting for me then.

>> I'm just going to walk in and sit down

and start then. I think.

>> Okay, I'm back. Today we are going to

explain how to protect your finances

during the Iran war.

Okay, so I've been away for about six

months uh making a documentary um and

we're bringing the channel back. I would

have loved to have spoken about the uh

massive gains in the world tax movement,

but I think it would have been a bit

absurd for me to not do one explaining

everything you need to know about the

war. Um it looks like it's going to be a

pretty massive economic crisis. Uh there

are some important things that are not

being made clear in the news. So, we are

going to explain exactly what's

happening, how that's going to affect

you economically, how you can protect

yourselves from those impacts, and what

we can learn about the economy. Okay, so

I'm going to run quickly through the

basics. Uh, they are on the news

basically all the time, so you probably

already know them, but we do need to

cover it very quickly for those who

don't know. The US and Israel have

basically invaded Iran. Iran didn't fall

immediately. They assassinated the

leader. Um Iran has blocked this area of

sea known as the straight of Hormuz

through which an enormous amount of the

world's oil and gas pass through. Um at

this point we don't know how long it's

going to remain blocked. Um it could be

a few more days or it could be a few

more months. But either way, there is

going to be an enormous increase in the

price of energy, of oil and gas, and

that is going to cause a knock-on impact

on the prices of pretty much everything,

but most obviously food and fertilizer.

So, we are starting to see and we will

continue to see big increases in the

prices of energy, oil, gas, and uh

probably food as well. One quite

important impact which has not been

discussed much on the news is that this

has had a big knock on impact on

expectations for interest rates. So

this is going to cause inflation to go

up. Um central banks around the world

are supposed to keep inflation low. So

there is a question as to whether

central banks will increase interest

rates. So central banks all over the

world were generally in a cutting cycle.

Rates were coming down but at the moment

financial markets expect those most of

those central banks to turn around and

start hiking rates. Uh the base rate

here in the UK is currently 3.75

and financial markets at the moment are

expecting two or maybe even three hikes

this year bringing the base rate back up

to 4 and a half% which means your

mortgage rates will already have gone up

if you're looking for a new mortgage or

or may go up. Um I personally don't

think we will see um interest rate hikes

to that extent and I've actually started

to bet against those interest rate hikes

happening. Um but at the moment

financial markets are expecting central

banks across the world including here in

the UK in uh in Europe in Australia New

Zealand all across the world to raise

the interest rate in response to the

increase in inflation. uh which means

your mortgage will go up and it also

means the cost of government borrowing

will go up and and has already gone up.

So in the UK the cost of government

borrowing is very relevant. We've spoken

about it a lot. The UK has the highest

borrowing costs in Europe. Um this when

you combine it with the fact that UK

growth is low and the total amount of UK

government debt is high means that it

has become very difficult for the UK

government to spend money. Uh at the

moment the cost for the UK government to

borrow money for 10 years is just under

5% and that's gone up from about 4.2%

just a month ago. Um, this means that

because the UK government uses quite a

complicated formula to decide how much

it can spend, which factors into it the

cost of borrowing, probably the UK

government is going to struggle to

respond to support consumers during this

energy crisis. Um, and may even have to

do further austerity.

Uh, that is not a UK specific issue.

borrowing costs have gone up for

basically every country in the world.

Um, which increases this this growing

crisis of government indebtedness, high

government interest payments. Um, and

will make it difficult for governments

across the world basically to to respond

to support consumers, average people

during the energy price crisis that is

coming, that is already underway.

Okay. So, how is that going to affect

you? um it's going to affect you in

pretty obvious ways. Um the prices which

are likely to go up most are number one

going to be energy and number two going

to be food. Uh that should be

reminiscent of what happened when Russia

invaded Ukraine.

The big thing about

price rises that are led by energy and

food is energy and food are a much more

significant percentage of spending for

poorer people than for richer people. It

is a big chunk of the spending of an

ordinary family, but for very wealthy

people, it's a very small percentage of

their overall expenditure. So basically,

this crisis is going to hit the poorest

the hardest. Um, and it's going to have

the the most obvious impact. It's going

to be more expensive for you to heat

your home, to turn your air conditioning

on, to drive your car, um, to probably

take any flights if you want to take

flights, uh, and also to to feed your

family. So, the next question is, how do

you protect yourself? The obvious thing

that is going to happen here which also

happened when Russia invaded Ukraine is

there is going to be a lot of pressure

on governments to react to protect their

citizens which is you. Now the obvious

thing that is going to happen um

which happens automatically to agree in

this country and will happen across the

world is governments will be pressured

to basically respond directly to the

most obvious and visible consequence of

what has happened which is rising energy

prices. And governments will be

pressured to cap energy prices, to

subsidize energy, to reduce taxation of

energy. Basically, governments will be

incentivized to keep the price of energy

down. And this is a really bad policy.

I'm going to explain why. So I think if

we get this and we will get this to some

degree in in basically every country in

the world this policy of governments

subsidizing governments directly coming

in to to keep the price of energy down.

We will basically be repeating the

economic mistakes which we made in

COVID. So, those of you who have watched

this channel from the beginning will

know that I started this channel in June

2020 because we were in the early stages

of the COVID crisis and it was

relatively clear to me that governments

here in the UK also around the world

were going to respond to the economic

crisis in such a way that they

eliminated the most obvious visible

negative consequences of the economic

crisis which at the time was primarily

lockdown

but in a way that caused enormous

negative side effects. Namely a massive

decrease in government wealth um a

massive increase in the wealth of the

richest and obviously as a consequence

of those two things an enormous increase

in inequality. And I think the way that

we reacted to the Russian invasion of

Ukraine and the way that governments are

likely to react to this crisis now

trying to directly subsidize energy

prices

basically is making the exact same

mistake again which is okay what do we

want to do? We want to get rid of the

most terrible most visible economic