On Tuesday, CNBC published an article for their Fed Survey and what they expect the Federal Reserve to do regarding interest rates. They expect that the Federal Reserve will change course and begin to raise rates starting in 2022.
If this is really their strategy, it’s going to be a disaster.
According to the survey, respondents, made up of economists, strategists and money managers, expect the Feds to raise interest rates around 3 times per year for the next 2 years. Currently the interest rate is around zero. Respondents believe that the Fed will raise rates to 1.5% by next summer and 2.4% by summer 2024. 45% said that they expect the Fed to raise the rates even further while 48% said that they don’t expect rates to rise higher than the 2.4%.
Back in the 1970s, inflation rose to 15% at it’s peak. To get that under control, the Feds had to raise rates to 18%. Now they are only going to raise rates to 2.4% but not for another two years?
If you believe the government numbers, inflation is already at 6.8% as of November. The real inflation rate would be 15% if we measured inflation the same way as we did back then. Even if the 6.8% was accurate, we are only going to raise interest rates to 2.4% by 2024?
The Federal Reserve is now claiming that they expect inflation rates to fall to 4% by the end of 2022 and 3% by the end of 2023. It’s still higher than what the target rate is (2%) but that would be a massive improvement, if true. But do we really think they are right this time when they have gotten inflation so wrong this year?
Earlier this year we were told that inflation wasn’t happening. Then we were told that inflation was happening but it’s only transitory. Now we are told by the Chairman of the Fed that we need to retire the word “transitory” when talking about inflation. They have repeatedly underestimated the forecasts and it’s quickly getting out of control.
There are no good options. Back in the 1970’s we had less than $1 trillion in debt so they could afford to raise rates to 18%. We can’t now. We are now in $30 trillion in debt. Raising rates to even half of that would bankrupt us, unless YOU were willing to make significant sacrifices.
A collapse is coming. All of the signs are pointing to a collapse. If you raise rates too much, even if you could raise rates without us going bankrupt, it crashes the economy. If you don’t raise rates, inflation will continue to get out of control and that will collapse the economy. They are also expected to end asset purchases by spring 2022. The last time they did this, we had the 2008 crash.
There is one other option but at least 90% of the country would never go for it but it’s their best and maybe the only option if you want to prevent the country from becoming Venezuela. You gut the federal government. You end every federal department and program that isn’t essential (at least for a few years until we get inflation under control and then we would need to discuss what should we eliminate permanently so that we aren’t back into this situation a few years later). You fund the military but only to the point of what is essential and nothing more. This also means that you need to completely eliminate unemployment and people need to be forced to go back to work. You are going to have to eliminate social security. Every program that Americans rely on will need to be eliminated for a few years. It will be extremely painful and the economy will still crash but it might be the only way to prevent us from turning into Venezuela. You then can afford to raise interest rates significantly. I don’t know if it would be enough, but there’s a chance that you could get inflation under control before things get significantly worse. When that happens, interest rates would drop, the government can afford to continue to pay interest on the debt at 1-2% and maybe by the end of the decade we are close to being back to normal.
That’s where we are. There are no good options that don’t lead to an economic collapse, although with today’s society the best option that we have would lead to massive riots and a civil war.
There are several steps that you can take to prepare for what’s coming and you need to prepare quickly.
- Anything that you have in the market that is depended on the markets increasing, I would pull now. It is possible that we still hit a new high in the market before the crash but I wouldn’t risk it to earn another 1 or 2%. If you are going to keep money in the stock market, you need to invest in inverse ETF’s or another company that you have researched that does well during crashes.
- I would recommend stocking up on as many essential items as you can. Minimum have at least 3 months of supplies on hand. I would recommend a year if you can afford to. If you can’t, I would recommend making whatever cuts that you need to to be able to afford to prepare. That protects you if there’s a shortage and you can get the item that you need before the price increases. Even if you believe the Fed, inflation is still going to be extremely high for 2022. But again, they have been significantly underestimating inflation all year so if they are wrong again, inflation is going to be higher than what they are claiming. Buy what you can now before prices rise another 15-20%.
- You need to get out of any loans that have a variable interest rates. Do whatever you can to pay those down quickly before rates start to rise. Try to cut expenses as much as possible to be able to pay off your credit cards. Cancel any subscriptions that you can do without. Downsize if you need to now before the housing market crashes.
- If you can, I would recommend planting a garden and getting chickens at the very least. You would at least have some food and it will take pressure off of your budget a little when things get really bad. Multiple companies have already announced that they will be raising prices on items by up to 20% in January.
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