The Worse, 2nd Wave | Massive Economic Correction

well Steve in our live chat says we're

going to have a second wave of inflation

after the recession that's definitely

coming because after all if the Federal

Reserves SCP report is projecting point

four percent GDP at the end of the year

and now you've got some fed officials

expecting a slight recession oh damn

anything they say you know is going to

be worse and the actual reality is

so far Steve's been right everything the

FED has projected has been worse in

reality so assuming that anything the

FED says is actually going to be better

than expected may end up being a Fool's

Aaron instead of the fact that they were

hiking back in March of 2022 when

inflation was already at six and a half

percent that's when they started hiking

but what were they doing at the same

time they were still printing 80 billion

dollars of money they were still doing

QE quantitative easing right why it's

mind-blowing well it's because they

thought inflation was going to be

transitory oh it was covid then it was

Delta Omicron and War okay those are

four shocks but that'll be temporary

well temporary ended up lasting a whole

hell of a lot longer now maybe it'll end

up proving to be transitory but that'll

be over probably twice the time frame

that the Federal Reserve expected so

everything's taking a lot longer things

are lasting a lot longer and usually

that's a good thing but in the case of

bad news it's not a good thing so is it

possible that when we go into this

shallow recession we're going to end up

with a second wave of inflation and

there are a lot of fears that the answer

to that is hell yeah I mean look at what

the bond market is already pricing in

the bond market for some reason expects

some massive fear coming very very soon

I mean look at it right here the bond

market is screaming at you telling you

uh oh the bond market thinks something's

going to snap very soon which is kind of

weird because like things don't seem

that terribly bad right now but the way

you would read this is you would look

right here look at this if the peak Fed

rate which is just where this orange bar

Peaks right here is in tune why is the

market pricing in all of these Cuts well

it assumes something is going to break

in fact you could look at this Barclays

piece which tells it to you in a

different phrase rate cut expectations

right now are being priced out however

the implied rate path remains far below

the fed's consensus this looks rather

strange given the market is pricing a

further rate hike in May implying the

bond market must be expecting a material

deterioration in the economy in the next

few months looking back at history and

I'll translate this in a moment in case

I lost it but looking back at history we

found only three instances of a similar

outcome 1974 1980 1981 all saw a sharp

weakening across macroeconomic

indicators like the institute for supply

side management information the non-farm

payroll jobless claims and inflation

while admittedly ISM Manufacturing is

already down at recessionary levels the

jobs Market inflation are both in much

better starting positions than in these

other periods in other words this time

is different right therefore we find it

hard to believe that we are bearing down

on the much anticipated pivot from the

FED to cut unless there is a serious

economic weakening and so this is really

interesting because let's translate this

basically what these Wall Street suits

are saying is yo man dude with the

dragon chain armor listen up man

the bond market thinks rates are going

to tank by the end of the year

the bomb Market knows all because it has

a crystal ball it doesn't

and because the bond market says big

rate cuts are coming something's about

to hit the fan

and then when something hits the fan the

fed's gonna have to turn the money

printer on again and then this is where

you get to Steve's argument Steve who

says quote I hope I am wrong

Steve's argument is that as soon as you

turn the money printer on again you're

effed because you're going to go right

back to the inflation that you had

during the pandemic and I think this is

where it's worth considering previous

times the Federal Reserve cut and did we

end up getting inflation let's consider

the fed's pause in 2018. did we get

inflation when the Federal Reserve

paused its rate hike regime no we got a

bull market and Below Trend inflation

what about in 2009 when the Federal

Reserve provided basically uh so to

speak unlimited bailout it wasn't

unlimited at that point there was a

number set on it but a big bailout big

backstop of markets the FED basically

created the bottom of the market by a

law large bailout in February of 2009

and this is about six months after the

Lehman Brothers disaster and everything

even though Congress was trying to bail

you know everything out in like

September and October it wasn't until a

Fed really stepped in with a money

printer and what did we get for the next

decade no inflation

so it makes you wonder is structural

disinflation that's a fancy way of

saying because we have technology that

makes things generally more either

productive or cheaper therefore in the

long run like how much are you paying

for a 40 inch TV 20 years ago that's an

LCD uh two grand how much are you paying

today 200 right that structural

deflation is it possible that we'll go

right back to seeing that and I think

where this comes to in in expectations

is you have to just personally ask

yourself well what do I believe and let

me set the stage for you because I think

it's a lot easier to think about it when

we not only consider history but also

when we consider what's likely to happen

so let's think about this

so when we're on this page right here

what we can do is we can say all right

so what cause what do we know that

caused massive inflation okay what

caused massive inflation and what caused

no inflation okay so if we compare these

segments here we should be able to have

a little bit of an idea so what caused

no inflation well no inflation was let's

see let's go with a little bit of a

smaller print here there we go so no

inflation was what we saw in 2018 what

we saw in 2009 some could even argue

what we saw in the orally 2003 era

because we really didn't have a massive

inflation problem you could also say the

late 80s right the 87 89 recession we

didn't have inflation here that's

because this was all part of the Great

moderation and so no inflation could be

because of structural disinflation

that's what I talked about with the LCD

screens right in other words we can

print without inflation that's

interesting so what definitely causes

inflation like what do we know with

certainty causes inflation well let's

try uh three rounds of massive stemi

checks right stimmy hey don't get me

wrong I love the stimmy check days they

were great but it's no surprise we had

massive inflation right how about uh a

massive uh massive unemployment payments

for not working remember the somewhere

around 600 a week for doing nothing

right all of the obviously the eidls the

ppps all of this right we know that

causes inflation we know price caps and

subsequent removal cause inflation

that's what we had in 1969 uh and then

we know uh and then somewhere around 75

as well we also know that inflation is

caused by unanchored inflation

expectations this is what when the

economy gets fed up and says the FED

doesn't know what the f they're doing so

screw them when did that happen well you

could argue that happened in uh 79 to 81

where we also had then two waves uh one

wave was over here in 75 and the other

wave was in the late 80s you basically

had uh an oil disaster right oil prices

way up right we think oil prices are so

high today but they're really a fraction

of what the explosion was that we saw in

the late uh 70 mid to late 70s so really

compare the the things that cause

inflation to what we expect here so what

do we expect going forward and this is a

guess right uh we would expect in a rate

cut regime what do we expect do we think

we'll go back to stimulus checks

personally I believe the answer to that

is unlikely I think what we would see

would probably be expanded support for a

poor and maybe exp and more

expanded additional on top of what we

already have support for uh us

manufacturing because that would create

more jobs right creating basically

providing stimulus checks to

manufacturers is what China does and if

you look at China they don't they're not

experiencing heavy inflation in fact

Chinese rates are kept at I think it's

2.75 they're not facing an inflation

problem and the stimulus checks that

China gave did not go to the people they

actually went to the creators of Labor

which is manufacturing you know AOC was

on Twitter ranting yesterday that the

Labor Department is supposed to be for

people and not bosses but the reality is

bosses create jobs people don't create

jobs people do jobs bosses create jobs

anyway I don't know why it went off on

an AOC tangent here but but then again

she likes to say things that are popular

on Twitter that are often detached from

reality or economics anyway but she does

a great job running campaigns you can't

you can't you can't fall for that uh

even if you hate her guts you can't

fault her she knows how to run a

campaign so anyway

um what do you have how is today

different and I hate using that phrase

because every time I use the word

different we always think oh oh this

time is different you know and that

obviously that means that uh you know

that's wrong but uh I think we have to

go a step further here and actually look

and go well do we really think we're

going to get any of the things on the

left again that would cause a second

massive wave of inflation after this say

shallow or deep recession that we get

when the Federal Reserve starts printing

again well do we think we're going to

get rounds of stimulus checks and

massive unemployment payments for not

working creating massive supply chain

disruptions and lockdowns no of course

not I mean nobody in their right mind is

going to go back to that no way hell no

uh or do we have price caps no we've

learned that price caps don't work do we

have unanchored inflation expectation

technically no have we seen a recent

crack yes so we want to pay attention to

this one but technically right now no do

we have an oil disaster with oil prices

skyrocketing gas is more expensive now

that's true but is it anything like the

4X that we saw uh back in uh in the 80s

or even what we saw in the 2008 era no

of course not yes oils and gas is a

little more expensive

but it's nowhere near the levels that it

even was in the last in this cycle right

so no we don't have an OPEC or oil

disaster I mean we do have new fears

like we have this D dollar fear right so

there's the D dollar fear but I've

already broken down on the channel a

thousand times so this is complete

nonsense I just posted a video on it

yesterday just type into YouTube meet

Kevin China breaks the dollar or

whatever uh then you can have this

argument about uh China invading Taiwan

yes that's a potential problem but it's

probably like a less than five percent

probability and of course if you have a

different probability then maybe you

think differently uh and yeah we've got

the Russia Ukraine disaster but so far

the world is moving forward you know

without any massive inflation continuing

right we were facing disinflation right

now yes there are still some levels of

sticky inflation but the point is if we

go through a recession the current cycle

of inflation is expected to be gone so

not terribly worried about that so what

do we think going forward well yeah

maybe expanded support for the poor and

additional support for manufacturing but

do I really think we're going to get

after the FED goes back to cutting some

kind of massive surge of inflation again

no because that nothing aligns with the

left side here and everything aligns

with the right side of this document

here which is the 18 2009 2003 late 80s

great moderation style money Printing

and guess what no inflation so thanks

Steve you just helped me make a 10

minute video I appreciate you you know I

feel like you all you're owed like a

royalty here like a share of this

video's Revenue you know so anyway with

that said Do I Really fear massive

inflation no but instead what I'm gonna

do is I'm gonna listen to the opening

bell

[Applause]

foreign

all right now just to finish that

thought up uh Gary Roberts says Milton

Friedman would disagree government

printing is what causes inflation uh

that's not actually what Milton Friedman

says Milton Friedman says it's the

expansion of the money supply we're

always printing money but if we're

rolling that money off then we can

actually see money printing happening at

the same time as the money supply is

Contracting right so we can look at the

money supply this is an Austrian School

of Economics thesis and so we could look

at the money supply and to some extent

Milton Friedman is correct however it's

actually the first derivative of the

money supply that you have to pay

attention to it's not the money supply

itself that you have to pay attention to

now that sounds extremely complicated it

makes it sound like I just came out of a

math class trust me I hate math so let's

make this very simple and let's answer

what act actually Milton Friedman

suggests when a hymn or Austrian Econo

Economist suggests that money the money

supply expanding will cause inflation

what it actually means is the rate of

change accelerating up quickly in the

expansion of the money supply that

causes inflation look at this

graphically this is the M2 money supply

and what I want you to notice is see

this entire era from here

1981 all the way to 2020 that entire

segment what happened Mr Gary Roberts

what happened from the left side all the

way to 2020 what happened is very simple

the money supply expanded how much

inflation did we get zero okay like 1.5

super nominal basically zero we may as

well round it to zero

but what happened when that rate which

was progressing steadily even through

those recession what happened when the

rate of money supply expansion exploded

in other words

right here over here during the covet

pandemic oh damn that caused inflation

so we have to parse what Milton Friedman

says and actually you help me make my

point because if we go over here to 2009

you can see the rate of money supply

growth didn't unanchor ridiculously and

stupidly and we didn't get inflation so

money supply can expand without causing

inflation it's the derivative of

inflation or of the money supply that

causes inflation if I were to make a

first derivative chart of this uh it

would probably look something like let's

draw it together so if we were going to

drop a first derivative chart of this

boy it's been so long since I've done

this so the rate of change for 20 years

is flat

right this is our our chart flat and

therefore no inflation right but then

all of a sudden the acceleration how

quickly the money supply expanded

exploded

right and then we kind of got back to

flat and then we actually turned

negative right money supply growth

expanding at sort of a negative level

um this right here

is what caused the inflation not the 20

years before it so it's really

interesting thing about look I love

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