The Deflation Crash | The "Dire Warning" [My Response]

we need to talk about deflation and the

coming impacts of a deflationary crisis

and in this video we're going to react

to the warning that Nick gave let's

analyze that the CEO of Walmart just

issued a dire warning about the US

economy saying that we could see

deflation in 2024 a situation that could

cause prices across the US economy and

housing market to decline while also

causing the unemployment rate to Surge

with the historical unemployment rate

during periods of deflation routinely

approaching 10% you could see in the

1890s deflation we had over 10%

unemployment in the early 1920s

deflation we had nearly 10% in the Great

Depression we had 20% unemployment and

then of course in the 2008 2009

financial crisis we also had 10%

unemployment that doesn't sound very

good and I want to actually leave you

guys here on an optimistic note and

that's that deflation has a lot of

negative connotations in the economic

sphere we had some deflationary forces

in 2008 it was really really bad for the

economy but there have been situations

historically in America where deflation

has been good for the economy most

particularly back in the 1920s that was

one of the most prosperous decades for

the US economy in history however during

that decade the prices of goods and

services went down so you can see on

this graph prices started going down in

1921 then there was big deflation in

19222 and then actually later in the

decade there was price declines as well

and total prices in the 1920s went down

11% it was an 11% deflation in the 1920s

yet our economy as a country did really

really well and I'm thinking maybe could

something similar happen in the 2020s

ahead could there be another Roaring 20s

okay this is a tough one we're going to

have a little bit of a chicken and egg

problem here and I want to hear your

opinion on this but I can't necessarily

say that just because we had deflation

in the

1920s that's why we had a roaring 20s

first of all the Roaring 20s was

characterized as a time of like a

broadening of social norms and values

and and economic growth but we're really

talking about about

1923 to about

1927 that core period there which hey

we're in 2023 today so maybe we can get

that optimism ahead of us and I think

that's quite possible but let's be real

why did we have deflation at the

beginning of the decade and the end of

the decade it's because we had two

depressions you might only remember the

Great Depression but we actually had

more deflation at the beginning of the

decade and that was a nasty depression

the recession of 1920 started about 14

months after World War One millions of

war vets just entered the economy again

problem though was we weren't really

ready to go from a war economy to a

normal economy so all of a sudden you

had a lot of people looking for work and

not a lot of work so prices fell 13 to

18% which is great I mean it's it's more

of a price decline than you had since

the Great Depression we like hearing

that because we want prices to come down

but here's what it took to get that

unemployment doubling automobile

production dropping 60% industrial

production dropping 30% productivity

dropping 29.4% the Tulsa Race Massacre

most families live below the poverty

line terrorists on Wall Street wounded

300 and killed 38 yeah terrorists on

Wall Street a Red Scare was underway the

president had a stroke the Federal

Reserve was literally keeping rates High

amplifying the pain of

deflation and you couldn't even drink

because prohibition just started so

let's just say I'm not entirely

convinced that deflation is something

that we should cheer for as much as I

want to see prices come down in certain

areas like you know where we're buying

stuff okay like we want to see prices go

down when prices go down broadly it

leads to unemployment let me explain

that and and even even in Nick's video

here he says oh unemployment you know

went up to 10 20% or whatever we

shouldn't cheer for that right now we

have 6.5 million people unemployed and

roughly 4% unemployment if that 5x is to

20% Which I don't think it will that

would be 32.5 million people unemployed

that would be a really tough time for

the economy people will be cheering

about lower prices but they wouldn't

have money anyway because they'd have no

job it would be a terrible place to be

so again we have to be careful if we

cheer for deflation you might actually

be cheering for a cure that's worse than

the disease that is deflation could be

worse than inflation and in my opinion

deflation isn't something to cheer for

it's actually something to be afraid of

because deflation was caused by Massive

pain in 1920 and 21 keep in mind that

was also right after the Spanish Flu

ended kind of crazy that's the last big

pandemic we had in the last 105 years

you know obviously before Co then you

had the Great Depression where you also

had deflation but also an absolutely

miserable

time poverty massive poverty this is not

what you want to

encourage now what do we know that's

actually happening well so I in a course

member live stream just about two weeks

ago broke down the earnings call and uh

I wrote here the deflationary snowball

begins so we've been covering this for a

couple weeks on the channel

here and this is what I wrote I wrote I

didn't even adjust this I wrote this two

weeks ago I wrote what does everyone

forget about deflation it's competitive

in a capitalistic economy providers of

goods and services compete to offer

lower prices that's normal so why don't

we always have deflation because

deflation is unfortunately usually

coupled with with

unemployment and that's worse for the

economy so this is where the FED has to

have this clever Balancing Act of a 2%

inflation Target there's a reason why

the FED doesn't want deflation a because

it makes the government's money printer

harder to pay off so yes there is there

is that political rigging that is going

on that is a reality yes printing money

actually supports our ability to keep

printing money because if you have

deflation people get really pissed

and it's even worse than inflation you

just want stability that's why the fed's

Mandate is not lower prices it's stable

prices there's a very clear rationale

for that because the times we've had

deflation it's been a

disaster so here Walmart talks about

more roll backs they also talk about

being more focused on a deflationary

environment understand what they're in

implying here they're implying that in a

inflationary environment we have to be

more productive with our quote cost

structure which means firing people and

trying to be more efficient with the

people you have left that's why I wrote

how much unemployment pain happens

between now and the FED Cuts that's a

big warning deflation is something to

fear it is not something to cheer I'm

not a big fan of cheering for deflation

now unfortunately that's not going to be

the most popular thing to say it is much

more popular to say hey I just want to

make these YouTube videos to try to make

everything more affordable for you the

cost of goods and services in the

economy is likely to get cheaper which

is something that consumers need right

now because the inflation of the last 3

years has left Americans really

struggling to get bought but I don't

want to do that and say Hey you know

that computer you want to buy that's you

know the Nvidia 490 you want to buy

that's

$3,700 I want to help you get that for

$2,000 as much as I want to do that I

don't want to lie to your face and say I

want to help you get that computer for

$2,000 but you're also going to get

evicted you're going to lose your job

and you're absolutely going to be

depressed I don't want to do that

deflation historically and this is a

historical evidence is not what we

should be cheering for yes deflation did

happen in the Great Recession and we

might knocking on the door of deflation

as well now now it's really interesting

is you'll actually notice that when we

started hitting deflation you were

basically at the end of the recession

for the Great Recession so if you look

specifically at 2008 I'm like wait a

minute but if we look at

2008 as soon as we hit deflation the

pain was

over which is actually potentially

bullish for the economy because what

happens soon as you hit deflation the F

turns the Federal Reserve turns the

money printer on again now unfortunately

if the money printer gets turned on the

opposite of what Nick is looking for

ends up happening to the economy that's

the challenging thing and this is where

obviously paths would will

diverge but if you turn the money

printer back on your dollars are going

to lose value you are actually going to

purposefully go from potentially

deflation back to having a little bit of

inflation again hopefully not too much

you're trying to calibrate that

inflation and so if you calibrate that

inflation up again what's your

hedge assets stocks in real estate those

become your hedge to inflation because

the FED knows that deflation leads to

Rapid and rampant unemployment which

Nick himself said we know the FED is

unlikely to allow deflation to occur and

I'm not convinced we want deflation to

occur because of the pain it causes but

again as soon as we start seeing signs

of deflation there's more evidence

looking at the CPI charts that you're

actually at the bottom of a crash than

you are at the beginning of a crash so

let's be clear here let's let's write

this out so we can make it uh clear and

align this because I know there's a lot

going on so let's write this out so what

we're going to do is we're going to

write Nick's arguments on the left and

we're going to compare and contrast

and I want to hear what your thoughts

are so Nick's argument is

deflation was good and home prices are

going to collapse deflation is an

inherent good things becoming cheaper is

an inherent good but he's suggesting

that

economic deflation like the entire

economy deflating is good for you

because it led to the Roaring 20s but it

only got there through massive

depression like we explained for the

depression of the 192021 period and the

end of the

1920s so Kevin's going to argue that the

start of

deflation is a sign to print and that is

actually what equals a

good but unfortunately for Nick's

argument when you start seeing the signs

of deflation and you want to avoid the

joblessness

which he himself mentions that

unemployment will go up I shorten that

as unemployment insurance from the co

days UI but anyway I argue that when you

start printing you actually keep

unemployment stable and that's what the

FED wants so as soon as you start seeing

the signs of deflation my argument is

that's a good sign the FED prints money

unemployment stabilizes and what does

that do for asset

prices asset prices usually go up not

down Nick is arguing deflation is good

because things are cheaper for you and

homes will finally be affordable again

both of those are a popular thing to say

but they mask the reality that to get

that you need massive

unemployment and that could mean you

losing your job in addition to that we

have history on our side to suggest that

history

says once we start getting deflation the

Fed Prince which which ends up being

good so history is on our side not on

Nick's side that home prices collapsing

with deflation is somehow a good that we

should be cheering for I don't think

Nick wins on that argument now I'm I

want to be very clear here I'm just here

to add perspective and to see what you

all think about this debate of course it

would be nice to say prices are going to

come down everything's going to be more

affordable but I'm actually concerned of

the opposite that the fed's basically

going to have to turn the money printer

on pretty quickly and things are

actually going to get even more

unaffordable which I'm not saying is

good I don't want that to happen right

it's tough but I think that's what's

going to happen I think the fed's going

to turn the money printer on to

stabilize jobs home prices will become

more unaffordable stock prices will

become more unaffordable and guess what

happens the gap between the rich and the

poor will actually widen apartment list

reporting that 68 of the 100 largest US

cities have registered negative rent

growth year-over-year through November

2023 so that's over 2third of cities

experiencing declining apartment rents

this is true we are seeing rental

softness in fact on the ground we are

regularly seeing areas that were very

popular during the pandemic to move to

that also support a lot of new

construction especially in apartment

buildings we're sing rents collapse

that's a good thing on the rent side

that's fantastic it's not so great great

for people who are speculating on

long-term rents or that's how they want

to make their money A lot of property

managers right now what they're doing is

they're giving movein concessions so

they're like yeah the rent's 2400 but

we'll give you one month free well then

technically your Market rent is actually

2200 since you just discounted at $200

per month $2,400 on a year term so this

is a good that is occurring and that is

actually going to be reflected in CPI

unfortunately you have about an 18mon

lag in that showing up in CPI which

means the FED might actually be behind

the eightball in terms of making sure we

don't go into too much rapid deflation

and that's a risk that's where I'm like

I really don't want the FED to drive us

into deflation because it means they

destroy the economy it means they've

overtightened massive unemployment and

then you have a real crisis and we're

just not going to have money to do

anything in that kind of real crisis

because we want have

jobs 2008 anybody who's lived through

2008 looks back and says oh I wish I

bought real estate in 2010 everybody

says that but people didn't have

freaking money in 2010 cuz they lost

their jobs and they had to get back up

on their feet and their credit got

destroyed and their ability to get loans

was destroyed lending was super tight

didn't loosen for years so it's very

challenging fortunately a decline in

rents is happening and I think the fan

is aware of it the hope is will they

start turning the printer on sooner

before it's too late money supply

contraction and this is a pretty big

money supply contraction 3% it might not

sound like a lot but that's the biggest

that we've seen since the Great

Depression in fact excluding the Great

Depression it's the biggest that we've

seen all time in terms of money being

taken out of the system and so this is a

a warning to you guys out there because

if we no that's not entirely a fair

representation of what's going on and

Nick come on man you know this we've

touched on this before the M2 money

supply is still up substantially from

where we were before the pandemic it's

right here we're at 15 .4 trillion of

printed money now we're sitting at

20.7 yes when you use your

year-over-year

charts it's going to look volatile I

could make that chart happen very easily

too I just go to edit change to change

from a year ago let's go percent because

it'll be the most extreme oh my gosh wow

it went negative

duh because the number went really

really big really fast and then it

slowly started shrinking that's how you

get negative year-over-year numbers so

looking at year-over-year numbers out of

the context of what you're actually

studying is a very big mistake and a

very easy way to delude yourself into

understanding it or thinking you're

understanding a chart when you're not

seeing the full picture because

somebody's not presenting the full

picture so we we want to remember yes

money is being vacuumed up out of the

economy right now yes that is true but

there's still substantially more money

in the economy than there has been

previously that's not to say there are

not problems in the economy and there's

not to say that this does not cause pain

there just to say that comparing to the

1930s depression where the money supply

went negative isn't necessarily a fair

comparison when we just printed

trillions of dollars like8 trillion

dollar for covid Relief money and now

we're not anymore and now we're trying

to mop up some of that money and I want

to be careful to say that interest rates

are historically normal at these high

levels

interest rates don't work that way

interest rates are set based on what the

present stable or stabilized level of

inflation is if inflation is 1% then

maybe rates should be 2% and that would

be normal the spread is what you should

be measuring you shouldn't say well

interest rates were 15% back in the 70s

and then they came down below 10% in the

80s yay we were able to cheer single-

digigit mortgages or whatever it's all

about the spread what was inflation was

slowly declining over time so that

spread is what matters that's why we had

the great or the the first depression in

the 1920s not because rates were you

know historically abnormal it's because

the spread became ridiculous you had 6

and a halfish per fed funds rate but you

had deflation so you actually

potentially during a depression if you

had negative say 6% per year inflation

you actually during a depression had

somewhere around 12 % interest rates the

spread matters not well you know

interest rates seem like they've just

been abnormally low recently and uh you

know this is just normalizing the spread

matters uh but again it's that Nuance my

goal is just to provide that perspective

uh you know hopefully we can revise some

of this and and get some of this talked

about in Nick's videos I'd love to hear

his perspective I think he's got some

good content but I'd like to add this uh

and uh hopefully that perspective helps

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goes congratulations man you have done

so much people love you people look up

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and YouTuber meet Kevin always great to

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