8 Warning Signs from the Fed | Inflation & Interest Rates.

hey everyone me kevin here why does the

federal reserve believe that there will

not

be massive and long-term inflation

why does the fed believe we can get away

with printing

25 of the money that floats around in

america

or the world because it happened across

the world too in fact worse in the world

we might be at a third of all the money

that's circulating in the world

was just printed in 2020 25

printed in america in 2020 and another

1.9 trillion dollar stimulus package

getting deficit finance now we've got a

big infrastructure plan coming up

how in the world is the fed even

remotely sane to say

that they do not see inflation coming in

fact here you go

our forecast is for inflation to creep

up to two percent

and our goal is to have it hit above two

percent this year

our forecast is around two point one

percent but we don't see it running out

of control that is a statement

from the fed today why

are these people delusional are they

just saying this

because they're the ones cranking the

shaft on the money printer

they're the ones going like we better

not see any inflation because then we're

out of a job then we're not going to be

money printing anywhere

or what's going on here why

why does the fed actually think there

will not be inflation

well in this video i'm going to break

down eight reasons in a as simple as

possible manner so

again eight reasons eight why

the fed does not believe we are going to

see long-term persistent inflation

and yes that is designed to be

contrasted with short-term inflation

because yeah in the short term in other

words between let's say

april and september we're probably going

to see

some levels of short-term inflation that

could run as high as three to four

percent on a year-over-year comparison

especially as we compare to the pit of

the pandemic

and as we get back into a reopening

environment where people are spending a

little bit more freely

just over excitement of trying to maybe

go back to normal

we do not need more strains we do not

need another wave

well let's get into the eight long-term

reasons why the fed doesn't think

there's going to be inflation number one

supply chain issues folks

by definition supply chain issues in a

capitalistic environment are temporary

that is when we have a chip shortage or

we have a ship

stuck in the suez canal these issues are

temporary

why are supply chain issues a temporary

because

in a capitalistic global economy

when there is a shortage prices tend to

go up but because of capitalism

more competition gets incentivized to

enter even through higher barriers of

entry more competition

is incentivized to get into a field

or individuals who are seeking certain

supplies or companies seeking certain

supplies

look for alternative options or

substitutes

and all of a sudden you reduce the need

on those items or products or services

that are having supply chain issues

and so hence by definition supply chain

issues

are temporary the easiest way to think

of this as is

suez canal ship okay ship stuck things

slow down

in the meantime people who need stuff

fast have to pay a little more to get

that

stuff fast everybody else just ends up

paying with their time

their patience they get delayed now

supply chain issues

solve themselves in a capitalistic

environment as long as the reason for

the issue goes away

which it tends to you know whether it's

a lack of current materials fine then

more minors prop up

whether it's a lack of employees in

manufacturing facilities because a bunch

were laid off and all of a sudden

there's more demand than expected

because covet's over

fine then factories hire more people

supply chain issues by definition are

temporary

and once supply chain issues go away the

odds of higher prices due to supply

chain issues go away so we do not expect

the cost of shipping a 40-yard container

to be four thousand dollars

forever we expect that to go back to the

fifteen hundred dollars it used to be

maybe it'll go to sixteen hundred

dollars but it's not gonna stay at four

thousand dollars forever

at least that's again and i am

projecting what i believe the fed

believes

the fed speaks in tongue so you kind of

need somebody to interpret the fed right

but that's why you have me and it's also

why we have amazing programs on building

your wealth link down below

so i could give you my perspective on

breaking things down and translating

things in a way that actually

is actionable and makes sense number two

yes asset prices go up and have been

going up

asset prices in stocks and real estate

have been going through the moon but

you've also seen alternative assets go

through the moon

nfts non-fungible tokens bitcoin

ethereum alt coins

they're all going to the moon

essentially

and they've all recently gone to the

moon and so there is an argument to be

made

that because of all the extra money

printing we are yes

inflating asset values because there's

more money being

more money available to be invested so

more money gets invested driving these

asset prices up

but an interesting thing about asset

price inflation is that it's actually

very distinctly different from consumer

price inflation and this isn't trying to

reference the

cpi which stands for consumer price

inflation it's just to say

that inflation in terms of what we're

looking for

in in the way of inflation is oh no

my diamond hand guy just became a lot

more expensive my tv became a lot more

expensive my

hundred dollars no longer buys 20 loaves

of bread it only buys

15 loaves of bread i cannot buy as many

coffees anymore

because everything's gotten much more

expensive right that's the type of

inflation we're thinking of

now asset price inflation obviously does

not change the price of my cup of coffee

if anything it actually gives

corporations more money when you have

asset price inflation in stocks

it gives corporations more money more

access to capital

which actually lets them improve their

efficiencies and potentially drive down

the costs

of 3d printing or shipping coffee

because they have more money to innovate

and innovation drives prices down

so asset price inflation in in general

does not lead to consumer price

inflation

sure there's the argument that what

kevin what about the wealth effect

yes and and this is fair we're going to

talk about the wealth effect though

when we talk about the velocity of money

and that's for another argument

so for right now solely and strictly

ignoring the wealth effect and ignoring

the velocity of money

asset prices going up does not lead to

consumer prices going up

directly and permanently now that's

important as well

because what happens when real estate

prices go up when more people

demand housing when more people demand

housing

housing prices go up and when housing

prices go up

kind of like with the supply chain

issues when you have low supply what

happens

more people want to build homes that's

the again a perfect example of a

capitalistic

society is prices of something go up it

becomes it makes more sense to enter an

industry and become a builder

it makes more sense to be a contractor

or to be a contractor again

and build houses for people and so what

happens now

when there is temporarily a surge in

demand

for building homes well now you have

supply chain issues

for not just the homes but also for

lumber copper sheet metal

concrete everything rebar everything

goes up

but that's directly linked to yes asset

price is going up but it's a supply

chain issue which again by definition a

supply chain issue

temporary so yeah acid prices in that

case

can lead to temporary inflation but that

again

temporary not permanent okay now

and by temporary generally we mean three

to nine months

under a year is generally deemed to be

temporary okay

reason number three kevin believes the

fed believes there is no

inflation that is going to permanently

be a part of our society

tech deflation so kind of like what i

talked about with how

if companies have more access to capital

they might be more likely or more

capable of innovating

and when they innovate they can 3d print

faster better stronger

i kind of like the song anyway the same

thing happens

with technology when our cell phones

become much more powerful and all of a

sudden we have

three really incredible camera lenses

that rival dslrs well maybe now i don't

need to buy a thousand dollar dslr

anymore

with three three thousand dollar lenses

a piece

which means you know three lenses three

thousand dollars a piece plus let's say

a thousand dollar body that's a ten

thousand dollar camera set up

maybe i can replace all of that with an

iphone now photographers i understand

a lot of photographers are gonna get

pissed off hearing that don't get me

wrong

i am filming on said ten thousand dollar

plus set up times three actually since i

got three angles over here

uh so i like i get it but the point is

even if

20 percent of people stop buying dslrs

because now they have

incredible technology in their phone

that is an example of technology driving

the reduction of demand for spending

technology is

making me have to spend less to get the

quality of something that i desire

or even if it's 90 quality technology is

leading me to have a

substitute to something very expensive

and that is

an example of technologically driven

deflation

as things become better and faster and

stronger we do not necessarily have to

spend as much money

and the easiest example i can think of

aside from this camera phone here

is back when i sold my world of warcraft

account for two thousand dollars which

technically you're not supposed to do

but i did

many many years ago uh that makes me

sound when i was 16 years old which was

13 years ago

i used 2 000 to my buy myself a

sony bravia 2 000 tv

yeah it was really stupid and when i go

like this to make it seem

big it wasn't it was like 40 inches

which was

not that big for a tv 2 000 now i could

spend 299

and probably get myself a 55 inch hdtv

geez uh that is a perfect example of a

technological deflation right

okay let's move on from technological

deflation because i think it's pretty

obvious that technology

leads prices to go down okay now

uh number four is because we are in such

a competitive

global economy increasing prices

is sometimes very difficult for

companies to do

even though it sounds like and it would

seem logical

that oh there's a shortage for chips

let's raise our chip prices all raising

chip prices

does and this is where you have to go to

like from econ 101 to like econ like 102

or 103.

well all rising price raising prices

does as a company

is increase the incentives for

competitors to compete against your

business and try to take away from your

business

when prices go up more competitors come

into a space

hence what we talked about with solving

supply chain issues

so when there is a chip shortage yes

chips sold on ebay

and amazon may go through the roof

because they just don't exist they're

not available and third-party sellers

are reselling them for massive profits

and they're basically profiteering off

these ships

but directly going to manufacturers chip

manufacturers

we tend to see lower price increases we

do see price increases don't get me

wrong

china has been raising the price of

chips on us because there is a chip

shortage

but they are companies tend to be

reluctant to raise prices permanently

and very high because it induces

additional competition

some price increases are expected but

again

those are temporary price increases and

companies like to stay competitive so

what they do is they over time

drop their prices again to prevent

incentivizing competitors from taking

their business away

going kind of back to that capitalistic

argument and this is one of the reasons

why

we actually see a lot of companies when

there are supply shortages

they end up eating the margin that that

punishment basically because there are

supply chain issues they have delays so

maybe they're able to deliver less

products and rather than raising prices

and profiting more money they take a

little bit of a loss yes i know this

seems counterintuitive in business to

actually take

a little bit of a lower margin but

statistically that is what companies

tend to do they take a little bit of a

lower margin

and they just wait we pay with our

patients

and so price wars are not as common

as they used to be in terms of oh

they're raising their prices okay let's

raise our prices over here

and it's because of the competitiveness

of our global economy

we're more likely to pay with our time

than we are for a higher price product

it's crazy and look there are examples

all day long of prices going sky high on

amazon

we got to separate ourselves from like

you know retailers

ripping us off and actual wholesale

prices of some of these products

chips and video game graphic cards being

a perfect example of

don't compare to amazon to try to see

inflation that's not the right way to do

it

okay then the other thing is when we

have

bond shorts happening like crazy because

people expect inflation to come

like crazy we end up having the

potential

and this is crazy but we end up having

the potential

for a short squeeze in bonds

this could be insane so think about this

for a moment because this is a total

head trip

when people believe that inflation is

coming

they sell bonds when bonds sell

their price goes down there's more

supply of bonds because people are

selling price goes down

when price goes down yield goes up but

all of a sudden when yield goes up to a

certain point

you hit this sort of bell ding you hit

this little bell

and all of a sudden you're like a beacon

for the global economy to look at you

and go

oh damn i could get two percent

risk-free money in america

and i get zero percent for a bond in

in the european union or worse i have to

pay

so i buy a bond i'm supposed to get paid

interest but no i'm paying

the money negative yields on bonds yeah

that's what you're getting in europe

so european bond buyers or even japanese

bond buyers are like

that u.s dollar if i could get two

percent risk-free on a us bond

i might take that so at some point you

could actually

create a bond short squeeze

so you've got people selling off bonds

like crazy which when people sell off

bonds like crazy the price of bonds

falls

which leads people to say oh we might

see bonds to sell we might see bonds

sell off even further let's short bonds

and the price falls even more the yield

goes up even more

then boom ding you hit this high level

maybe that's like ten year two percent

right ten year treasury two percent

we're at like one point seven six

percent right now and then what happens

ding you hit the bell

all of a sudden foreign investors oh wow

this is amazing bye bye

bye bye bye us bonds all of a sudden us

bond deals go

down because you have this new demand

prices come up

when prices go up there's a possibility

of creating a bond short squeeze

which actually means the bond buyers or

the bond shorters might have to cover

driving up bond prices even more driving

yields down even

more so yeah you could literally set up

a bond short squeeze because of this

latest

drama that we're seeing about maybe

inflation coming

these are things to keep in mind bonus

by the way

remember how we were talking about price

wars i just want to add this note about

the last argument here

remember how we're talking about price

wars with price shortages a lot of folks

believe that hey well i mean energy

costs are going to go up like there's no

way

when we reopen oil is not going to go

through the roof and then gas prices are

going to go up and everything is going

to get a lot more expensive

well here's the beautiful thing about

america

and the hyper-competitive environment

that we're in back in 2009

yeah energy prices went up we had big

issues they went up substantially we

were talking like

5.50 gallon gas per gallon of gas in

california was absolutely nuts right

but what happened between 2009 and now

2021.

well fracking fracking became really

really really really popular

now fracking only makes sense at a

certain

dollar cost per barrel of oil below a

certain price

companies are better off shutting down

fracking facilities

and just or drilling facilities and just

not drilling which sounds crazy but it's

true

now if oil prices go up and we get

this covered economy reopening again and

there's more demand

sure opec could try to hoard oil and go

don't sell

don't sell do we don't want to flood the

prices or flood the market and

drop prices that's a manipulation right

or opec

manipulates the prices of oil by kind of

keeping uh their product embargoed

uh oh no no we're not selling as much of

this fine

but enter the united states fracking

competitiveness which yes biden has

limited on federal lands but on

non-federal lands fracking is still

more than possible what happens well

energy costs go down again when all of a

sudden you have more

local suppliers opening up their

drilling wells

and fracking uh facilities again and

that

tends to drive down the price of energy

costs again

is that price competitiveness even

though it seems like

well but kevin i mean come on if the

price of gas goes up to three dollars

why wouldn't i just sell a

gas for three dollars all the time why

would i drop it to 250

because when the gas station across the

street sells it for 250

you're not getting any business hence

competition right it it's interesting

now again we don't have to believe this

but i'm just making the argument here on

behalf of the fed

next number six reason number six the

federal reserve doesn't believe that

we'll actually see

inflation and yeah i mean if you think

about it take a break for a month

we've already gone through five reasons

why the fed doesn't actually believe

we'll see inflation do you believe it so

far

think about it for a moment ask yourself

that do you believe we won't see

inflation

well quick little recap

supply chain issues temporary asset

prices go up to create temporary supply

chain issues but don't really affect

long-term inflation tech deflation

remember the tv example

price war remember the competitiveness

gas

oil bond shorts the potential for a

massive bond short squeeze

foreign buyers coming in buying our

bonds as they become more attractive

while europe flounders

with negative yielding bonds come on our

bonds can't go up

that high when you've got negative

yielding bonds in the euro zone

it's crazy then you get number six

the mature economy argument if we look

at mature democracies throughout the

world

historically we find that the same thing

is true over and over again mature

democracies do not experience

hyper inflation or high inflation

now in the 1970s when the united states

left the gold standard this was

different

the united states left the gold standard

to go to fiat a completely

uh new concept for the united states

this was not an example of a mature

democracy with a mature monetary system

this was

this was an example of an infant

monetary system

that people now had to trust rather than

know that it's backed by gold now that

trust has established itself sadly

somewhat i mean i know many of us

watching this video like

kevin i don't trust the freaking

government but i mean relatively

you probably trust the american dollar

more than you trust

other currencies throughout the world

i'm not going to pick country names here

but

i think if you would rank like if you

had to take your entire net worth

right now and you can't pick

cryptocurrency okay

you have to take your entire net worth

right now what do you want to put it in

the yen the peso the yuan

the euro the dollar the canadian dollar

what do you want to put it in

the united states relatively might be up

there with these other ones it could be

number one out of all these other ones

do you want to put it in zimbabwe's

currency do you want to put it in

uh you know certain south american

countries currencies that are

very developing countries do you want to

put it into

uh india's currency where all of a

sudden uh was it a few years ago they're

like that's it

uh everybody bring your money prove

where you got your money from and then

we'll let you keep

or exchange your old money for a new

currency

do you want to deal with that so that

that relative

mature economy argument is very very

important you got to look

at the economies and decide yes the

united states has a relatively mature

economy now

especially after the 70s do we expect

that to happen again well i mean for the

other seven reasons in this video

probably not

but certainly when we look at history we

look at mature economies

and specifically democracies we tend to

see

deflation more than we see inflation as

we or i should say disinflation we see

inflation trending

down over time that's what we tend to

see

just is what it is number seven

failure of the phillips curve so the

phillips curve is just a fancy

complicated economist way of saying

hey look when unemployment gets really

low

people are going to or companies will

find it harder to find workers

and when companies find it harder to

find workers they're going to have to

offer their workers more money to get

workers

and because of that they'll drive prices

for workers up and if the prices for

workers go up

then the input costs at companies will

go up

and we'll have inflation because when

input costs go up and the price by the

price of workers going up

then the end product might get more

expensive and boom there you go consumer

price inflation

unfortunately that has broken apart that

has not been true

in all of the past 13 years now it could

come back

phillips curve could actually work again

but right now it doesn't work we've had

some highly highly highly declining

and very very low unemployment

in the united states over the last uh

you know certainly we had a nice strong

downtrend over the last 13 years now 12

years leading up to the pandemic

we didn't see inflation we didn't see

that relationship between

workers getting paid more because there

was low employment

and inflation we didn't see it and this

is leading some economists to say that

these long-term trends for inflation

have changed

and the phillips curve might be broken

maybe that

theory doesn't work anymore after all

economics is all about theories and the

way

human psychology works when it relates

to money uh in aggregate

and humans are really different you know

we are we're not like robots we're very

difficult to predict so nobody knows

but uh this is uh this is an issue

you have reason number eight why the fed

doesn't see inflation happening at least

right now

the velocity money sure we've seen

money printing and the m2 money supply

go through the roof it's straight up and

to the right substantially up

of 25 it's going to go up even more this

year

velocity money has plummeted from about

1.4 times circulation

you know this hundred dollars used to

circulate 1.4 times

when i deposited my bank account might

circulate 1.4 times i go outside outside

and spend it maybe it'll circulate four

or five times

before it ends up wherever it ends up

but the velocity of money at least

according to the m2 velocity of money

has plummeted it's gone from 1.4

times circulation to about 0.9 times

circulation

now there are a few possible reasons for

this one is people are

saving more and they're taking this

money and they're investing it so

either saving it or they're investing it

into stocks or real estate or bitcoin or

nfts or other

alt coins whatever but the point is

we haven't seen a return to the velocity

of money yet now this is probably the

biggest argument for inflation right

here number eight

and that is that the velocity money

could return this is why it's actually

very important

out of all these reasons to probably pay

attention to the velocity of money chart

google this st louis fred f-r-e-d

m2 money supply let's watch the chart

if this goes back to 1.4 with the amount

of money that has been printed

probably have issues we could probably

see pretty quick inflation

dramatically probably for a short term

this will create a whole lot of

imbalance

and that would repair itself over a few

painful years so that is a risk factor

this is

very much a risk factor however an

argument now is that the velocity

of money may never return to the levels

of where it was before

because maybe a lot of that money did

flow to wealthier households

who are investing it wealthier

households maybe only need so many boats

and so many yachts and so many airplanes

and so many

watches and if that's true if the

k-shaped recovery is true

that the rich got way richer and the

poor did not

then maybe that money won't make it back

to the economy maybe a lot of that

velocity of money maybe all that money

printing

did just make rich people a bunch richer

which is very depressing

uh for anybody who wasn't a beneficiary

of that

which is probably ninety percent of

people unfortunately

uh the reality is if the velocity money

does not go up

we have a very good chance of not seeing

inflation just also

kind of scary because it's like wait a

minute that literally means we were able

to get away

with all that money printing and we

didn't see inflation

it's official the game is ranked and

yeah

i agree with you the game is rigged

which is exactly why i encourage you to

learn how to take advantage of the game

the way it's played

in my courses on building wealth link

down below folks i thank you so much for

watching this let me know what your

thoughts are

and we'll see in the next one

you