Biden’s Policies are Driving Inflation That’ll Create a Recession Transcript
Because of course in the markets what goes up comes down and so we’re expecting well, I’m expecting a crash in the near future.
I’m expecting it to be a very, very big crash and some people are saying not just a crash some people are saying it’ll be a collapse and I would not be surprised if that’s the case so we’re very bearish in our outlook on the overall market at the moment.
And longer term I think that we could potentially be in a position where the US dollar starts to become weaker because it has increased the amount of US dollars in existence without really seeing an economic uptick in activity.
What Will Happen in the Financial Markets in the Next 6-12 Months?
Well Biden has obviously been changing a lot of policies as we know especially just like all the buying policy laws so, how has that been affecting the global markets and what has kind of happened over the last few months and what’s going to happen in the next few months in your opinion especially, let’s say in the next six to twelve months what do you see happening?
You want to go shack or me?
No you go first Derek and then I will.
What’s been happening up to now is the buzzword in the market is inflation and then it became fear about a recession and we’ve seen the markets overreact to that. The Federal Reserve has gone all out what you’ve got is a crazy Democratic administration at the White House at the moment who are out to kill fossil fuels and that’s really what’s driving this whole inflation across the world which could be very easily fixed, okay.
He’s blaming it the Democrats are blaming it basically on Putin, Putin, Putin and the war in Ukraine and I’m like yeah whatever because if the United States starts doing things like producing oil again which they could easily do and start fracking and stuff like that.
They could immediately turn around and sell it to Germany and UK and they’re going into winter and they need that energy to heat their homes. They really have got to get a resolution to that very quickly because otherwise their winters over there as they head into that get down to -20 degrees in some parts of Europe, it’s going to be cold and you don’t want to see a quarter of a million people dying because of lack of heating.
It can easily be fixed by that but then you’ve got crazy policies where the Biden decides to sell all the US oil reserves over to China and stuff like that and it’s just you’re really looking at just out destroyed the US destroyed the economy politics et cetera and that really is what’s driving it.
That won’t last in my view I believe it’s going to be overturned very quickly, I don’t know if Shakeel quite has the same view on that, but I think they’re going to overturn very quickly.
Regardless the Federal Reserve is out to try to curb that and stamp out basically the inflation with the increase in interest rates and has been doing so aggressively time and time again on that.
And that’s where things are at the moment. Obviously, we’ve seen, as Shakeel mentioned, the tech sector was very high with lockdowns. You saw of course, that as a response, Netflix companies like that go up.
That tech sector has dropped to probably about 25% in the last six months. If you look at the Nasdaq index, which is the grouping of all the big tech shares within that space, not surprising because of course in the markets what goes up comes down.
And so we’re expecting, well, I’m expecting a crash in the near future. I’m expecting to be a very, very big crash and some people are saying not just a crash, some people are saying it’ll be a collapse and I would not be surprised if that’s the case. So we’re very bearish in our outlook on the overall market at the moment.
For me, I think obviously there are political things happening. Of course, the United States is coming up to its midterms.
The polls seem to indicate the Republicans will probably take back the House and the Senate, which causes a bit of a problem when it comes to passing legislation, if you’re the President and you’re in one party in the House and the Senate are run by another.
Although Biden has had a recent uptick in the poll numbers. But that happens coming close to an election.
I think that the main couple of issues are going to be inflation and the market and how it’s going to be tackled.
So in Australia, what we’re seeing is the Governor of the Reserve Bank saying he’s going to continue to increase interest rates. He is saying that he predicts that the property prices across Australia could fall as by as much as 10%, but then he revised it to 15% and that’s a pretty significant fall and basically that’s taking all the money out of the system that was put in during the Pandemic.
And politically there’s a lot of people saying, hey, that’s not really fair on people. They’ve relied on and trusted the RBA and the government’s guidance when the government said go out and spend money, borrow money, buy property, that sort of stuff, during the Pandemic in order to boost the economy.
And now in return they’re going to get just absolutely hammered by these interest rate increases. On the same token, keeping interest rates aren’t officially low for an extended period of time comes with its own set of challenges.
So what do you do?
Now, obviously, and also the Reserve Bank Governor has called for higher tax rates. So obviously what he would like to do is to take money out of the system to curb some of that domestic inflation that we see here in Australia.
I don’t think that that’s necessarily going to be that helpful because a lot of the increase in prices that you’re seeing, both when you’re at the shops grocery shopping, but also across the board and other things, actually comes from international demand. International demand on Australian produce and international demand on the same products that Australia buys from other countries.
Not to mention things like the supply line issues and supply line disruptions that are still existing around the world. So that’s a problem and I’m not sure that pulling money out of the system is necessarily going to be the right way to do it.
Now, this is the same issue that’s facing the United States and obviously what the United States does has effects on economies all over the world, including ours.
So what does America do?
Well, they’ve got two options, essentially same as us. One option is that they can pull money out of the system. And that’s what there is some talk about.
There is some talk of increasing interest rates, which probably has to happen anyway, but there’s also talk of trying to pull money out of the system and there is also talk of them trying to increase the unemployment rate. So with more unemployed people, that dampens demand.
I’m not a fan of that idea. I don’t think that that’s the right move and that is somewhat the move that Australia is making and I think New Zealand is sort of following in those footsteps.
I’m not sure that that’s a very good idea. I think that it would be better to increase supply into the market. So an increase of supply of products, an increase in supply of goods and services.
By doing that, you actually increase more supply to outstrip the demand that has been created by the excess of money that’s been put in during those covid years.
Now that’s an economic decision that central banks will make. But obviously there is some political issues at play. Now, Joe Biden introduced what he is calling the Inflation Reduction Act.
In reality, the Inflation Reduction Act is really just an act that is a watered down, smaller version of the Bill Back Better programme.
And in that act there’s a lot of money being spent on things that are controversial, such as student loan forgiveness.
People say that’s not fair, why do some people get it and other people don’t? Why do some people get it when they’ve got loans and they’re perhaps not working and other people don’t get it because they’ve worked very hard and paid off their loans early?
And where’s the benefit? Where’s the benefit to the country as a whole? Is that only benefiting a very small group of people? Those things tend to increase inflation. When it’s all said and done in the United States, the Inflation Reduction Act will have a negligible, if any, effect on inflation.
So the inflation issue still remains there and I think that it’s going to be a very difficult balancing act for the Federal Reserve of the United States to balance and counterbalance the excess spending of the federal government.
So I think that those are all issues that need to be taken into account when you’re looking at the markets. I think, as well, it’s very important to have a look at what’s happening in China.
So, obviously we’re seeing a bit of a slowdown in some sectors of the Chinese economy and we’re also starting to see some real issues that are affecting China.
And not least of which is not just the economic issues, but also the potential controversies over Taiwan and whether or not the United States would be prepared to go into Taiwan or to protect Taiwan, as Joe Biden seemed to indicate in his 60 Minutes report.
And of course, if he does that, does Australia follow the US as we always have? And do other Western countries like the UK, most of Europe follow the US into there, as we generally always have since World War II, Australia always has since our Federation. Is that something that’s going to happen? What’s the economic repercussions of that?
I won’t go into the moral implications and what’s right and wrong with the loss of human life and that sort of thing. That’s a discussion for another time. But certainly from an economic perspective, we have to look at that.
Of course, the last thing is, and it’s an important thing that again goes to the supply line disruptions, again goes to energy prices, is the fact that we have this war between, invasion of Ukraine by Russia.
Now, what we know is that Europe is very reliant on Russian gas and Russian oil, but especially Russian gas for their heating. They’re bracing themselves for a very cold winter.
Japan also is bracing itself for a very cold winter, much colder than usual. And so that’s going to put a lot of pressure on those limited supplies.
What we know is that Russia is trading its oil with China at the moment, and China is able to access this oil at a bit of a discount off the worldwide price because of the embargoes, the trade embargoes, what I’m trying to look for, that’s been placed on Russia.
So China is benefiting from that. But how does that play out?
Well, there are countries like Myanmar that are saying that they’re going to reduce their reliance on the dollar and start to increase their reliance on things like the Rupee, things like the Ruble and also things like the Won.
And that’s telling of what’s happening around the world, we are beginning to see a shift away from the US dollar. So those are all going to be things that are going to affect us, I think, over the next year or two.
And longer term, I think that we could potentially be in a position where the US dollar starts to become weaker because it has increased the amount of US dollars in existence without really seeing an economic uptick in activity.
Now, hopefully that’s not the case, I would prefer to see the United States be strong. But I do tend to think it could be a painful few years coming up for the United States if things continue on their current apparent trajectory.
Shakeel Latimer’s Take on if the Crash Will Occur
One thing Derek mentioned earlier was that he sees a crash coming from because obviously all of these indications are giving it away.
Are you on the same page as Derek? Like seeing a crash come?
Depends on what you consider to be a crash. Right. When Derek says a crash, he’s probably talking about the broad stock market. But generally speaking, when you see the broad stock market crash, you’ll actually see things like commodity prices increase.
We already have seen commodity prices at near historic highs. So there’s always something that’s probably going up. There’s always some countries that go up when other countries go down.
But yeah, I do see there being very difficult times. I think the stock market is going to struggle to continue to move higher without some sort of impetus by the Fed. And I think that at the moment we’re seeing a bit of a rush into US dollars and we’ll probably continue to see that, which pushes the US dollar up.
But then what happens when that rush reverses? When people rush into other countries, big companies rush into the US dollar as a safe haven? What happens when the situation stabilises and they pull all their money out of the US? Then all of a sudden you see a rapidly falling US dollar.
That’s going to be a problem. Now, we have actually seen gold hit two year lows in recent times, which is also normally a safe haven. I wouldn’t go quite so far as to say a complete obliteration of the markets, but I think that there could be some very difficult times for the United States coming up.
And for us to be here in Australia, Australia generally speaking, weathers a storm much better because of the fact that we’re an agricultural country and a mining country. And so our mineral resources and agricultural resources tend to stabilise our economy a little bit more.
And anybody in Australia who grew up through the 2007 eight, nine years and the following years that were really bleak for the United States, if you ask an Australian kid what was it like going through the Great Recession, most Australian kids who grew up during that time would say, what recession? They’re not really going to.. weren’t close to it or to understand it.
What I think also is interesting is the China thing that nobody’s talking about is they’ve got this company called Evergrade, which is the second biggest property developer in China, and last I checked was about $80 billion they owe and they’re defaulting on that debt.
And that’s caused a lot of shakes and nerves in the markets because if they default on that, you also see the repercussions in terms of what happens to the suppliers and the supply chain around that.
But it’s affecting the banking sector as well. We’ve seen China in more regional banks shut and freeze bank accounts for the citizens. We’ve also seen like a rush on the bank trying to, people trying to get their money out of the regional banks over there. The banking system looks a little bit different with China, of course.
If you sign on to buy a unit or apartment, you actually start paying the full rate of interest from the time you sign on as opposed to lead it. So a lot of the Chinese investors or people just want to buy their homes have just said that’s it not paying anymore because these guys haven’t delivered on the housing what they promised.
And this is causing interestingly, an internal cash flow issue for China as it has ambitions to take over Taiwan. So I think that’s quite fascinating as far as the war effort is concerned, it’s very bad timing if you look at it from that perspective.
Just on currency as well. What’s interesting, we also saw Putin tied the Rubels, the gold standard, 5000 Rubels to 1oz of gold. That’s really interesting move.
Coupled with the fact that he said fine, you don’t want to buy our oil with all these embargoes. What’s the word I’m looking for? In other words, we might trade for you.
You know what I’m trying to think of the word at the moment that the other nations put on them.
That’s the word I was trying to find. I just went mental blank on the word I was looking for. Yeah, I did your trick. Sanctions. That’s it. Everyone tried to get into the chat window. There we go. Sanctions. Yes. Thank you everybody.
Thank you, Deb.
So, yes, sanctions. Those sanctions basically said fine, we won’t sell it in US dollars, we’ll sell it in Rubles. And that’s what they’ve been doing. So you see that the US dollar is starting, of they can do it, the Russians go to other countries and we are going, well, we can do the same.
China is looking at that as well, going all right, well we don’t have to trade in US dollars anymore with the underlying currency. The fact that the US has had that quarter on the market in terms of it being the standard currency to sell and buy sell oil in has made inflated the power of the US dollar.
So, yeah, it’s really interesting times.
So one of the things that’s come up with the US dollar in recent decades. I should say. But especially over the last decade.
Has been that if the US puts a sanction on a country and you’re a company that operates outside of the United States, but you want to transact a commodity which is denominated in US dollars by doing that transaction US dollars, you are in part subject to yourself. To US jurisdiction.
And what a lot of people are saying that are from countries that are perhaps hostile to us is why should we do that why don’t we just cross the rates directly?
And with countries where there is two way trade, it makes sense actually, for them to cross directly without having to cross through the US or even the Euro, which is sometimes used as well.
And so we’re beginning to see that. We’re beginning now to see a big movement away from direct trades in US dollars. And I’ve said this a lot, really in the last ten years, and I sort of stand by it. I may be wrong, but most Middle Eastern currencies are pegged to the US dollar.
I think that over time, certainly within my lifetime, I think that there’s a heightened likelihood of a massive depegging of Middle Eastern Currencies against the US dollar, as the US dollar becomes less important as a world reserve currency.
The world probably doesn’t need to have a world reserve currency as much as it did once.
The Effects if Middle Eastern Countries Depeg Their Currencies from the US Dollar
If it did depeg, what effects would that have on the population?
Which population? The population of which countries?
Let’s say it gets depegged from the American dollars, like the Middle Eastern currencies get depegged from it, what impact would that have on them? On who? The US. Or the Middle East. Just on both of them.
Well, I’ll start with the Middle East. I think that would give the Middle East a lot more power and control over their own economic futures. Obviously by pegging your currency to the US dollar, if you see inflation increasing in the US, where there shouldn’t be that kind of inflation in your own country, you’re going to sit there and say that your own currency is being essentially devalued because of economic forces that are outside of your control.
So I think that would probably give Middle Eastern countries a lot more independence and I think that would probably improve their economic positions, especially countries like the UAE, which does a lot of trade with the west. Saudi is becoming a bit more open now, so they’ll probably benefit from that as well.
I think that that would be a good move for almost all the countries there, for their populations.
For America, it’s going to be a different situation. And this is where there could be significant if that ever did happen, there would be significant headwinds for those of us in the Western world.
Because what you’re likely to see is countries, we’ll start with US, you’re likely to see that their ability to just continually increase debt into infinity will be somewhat gone.
Their ability to inflate the currency into nothing will be somewhat gone because a major part of the demand on US dollars will be gone.
People won’t need US dollars to conduct transactions and that’s going to be a real problem for them. And I think that there’ll be a day of reckoning where the US people will have to face the fact that they have enormous debts.
And for the rest of the countries that predominantly do trade with the United States like Australia does, the United Kingdom does. That’s going to be a really serious issue because if the US. Economy falls, that can be really significant for us.
Australia obviously also does a lot of trade with Asia, most notably China, but we also do a lot of trade with Japan that has one of the world’s biggest economies. I think that we just have to make sure that we make sure we have as many good, reliable trading partners as we can and that we are conducting two way trade with them.
We should be okay, but Australia but the United States certainly would be hurting I think.
A more significant issue, though, that I think we’ll be facing the United States in the next 10, 15, 20 years is going to be the amount of debt that they actually have.
They’ve got 30 trillion on the books right now. They’re running enormous deficits, I can’t remember the exact deficit now, but that’s going to increase by trillions of dollars more by the time that Biden’s presidency or by the time the next election comes up, I should say.
But that’s just one part of it.
The other part of it is their unfunded liabilities. The Social Security system and Medicare systems are running out of money. They’re predicted to actually run out of money in the next few years I think Medicare goes insolvent in in 2024.
Social Security starts running out of money in 2026. And when you actually look at what the debt levels are that come on the books in the next ten or 15 years, you’re actually talking about $150 to $200 trillion.
That’s an enormous figure, 150 to 200 trillion plus the 30 trillion that they’ve already got. And that’s just federally. So you’re talking close to a quarter of a quadrillion dollars.
If the economy was the same size when that happened, they’ve got an economy of around 20 trillion, they take about 25% off that GDP in taxes. So that equates to around four to 5 trillion a year that they receive in taxes.
Paying the interest, if interest rates were to go back up to 5%, which is sort of a more normal rate, if it was to do that, and you had $200 trillion worth of debt that you have to pay interest on that’s $10 trillion a year in debt, what are you going to do?
What they’ve been doing in the past that they’ve actually been borrowing more money in order to pay back debts that were already on the books.
But how long can they continue to do that? So I think that the debt issue in the United States is going to be a real issue and I think that there’s some significant problems facing them.
As I said, I won’t go quite so far to say it’s going to be a complete crash, as Derek is saying, only because, Derek, is I’m not sure that the elephant in the room is government intervention. And I’m not sure what the governments will do, but because a lot of these problems that are facing the United States in the world at the moment are kind of human made.
They’re made because of the green energy push, they’re made because of intervention.
And it really only takes someone to come in and say, you know what, we’re going to continue with our green energy ideas, but until we have workable, affordable solutions that are reliable, we are not going to curtail fossil fuels.
And if they did that, all of a sudden the regulations are gone and fossil fuels like oil start to flow more freely, all of a sudden you start to see the economic conditions change and change for the positive very, very quickly. So I think that the elephant in the room is government intervention, which is obviously unpredictable.
Just to clarify on that point, Derek, just so that we can work out the next points from here is, what extent do you actually see the crash going to?
Is it more of is it actually as big as Shaq might be thinking or a bit little, just to get some clarity around it.
So I’ve lost audio on my end, so if you try to talk to me, I can’t hear the question.
Sorry I got you back, but for some reason I lost audio. I think we muted it.
There we go. Well, pretty much what I was asking is just to clarify on Shak’s, that we can go from here and work out the next steps, because I was going to ask another question after this, but before I do, to get some clarity, what extent do you actually see the crash going to what you mentioned earlier, is it going to be a major crash that you see? Is it more minor? What type of extent are you looking?
Sorry, was the question. For some reason my phone is doing some funny bluetooth things and I lost it again. Maybe you should get an android, Derek, instead of an apple.
I made the point that I think that potentially, we still got you, Derek. We lost you.
I’m here, I’m just going to take the bluetooth off.
I made the point that I’m not sure that it’s going to be a complete crash because the elephant in the room is going to be government intervention, intervention by the Fed.
And of course, because this is largely driven by politics, we don’t exactly know what that’s going to be because it can be quite unpredictable.
The other thing that I said, there was a lot of stuff that’s causing the issues we’re facing right now has to do with government regulations, it has to do with things like the green squeeze on fossil fuels. We’re beginning to see a backlash against that.
We are beginning to see people say, look, we want to go down the green path, but it has to be reliable, it has to be affordable and not every single thing needs to be done in order to reduce emissions and potentially lower the temperature and climate change concerns.
So, if we were to see that lowering of regulations that would all of a sudden free up fossil fuels. You would all of a sudden, in my opinion, will all of a sudden see a rapid increase in the economy. And that’s why I’m reluctant to say that it’ll be a full blown crash, as you seem to think.
Yeah, no, I think it will crash personally. That’s my personal view. I think it’ll very big one as well. So, yeah, we’ll see who’s right on that.