Most of you clearly don’t understand how a mark crash would happen.
I saw a bunch of these top posts about the market crashing and the market not crashing and I lost more and more brain cells as I read through each one. I will try to explain this very complex issue in a very simple way for you all.
So here is the circumstances under which the U.S Market could potentially fail, and yes it includes inflationary risk. I am going to preface this issue with the fact that this topic is not black and white it is very complex and includes a lot of factors that would affect a market dump.
First off lets look back at the most recent stock market crash, the 2008 housing crisis. I won’t delve too deep but the reason this was allowed to happen was because the Government credit rating agencies ignored a very blatant issue and pretended it didn’t exist until the tipping point in which people defaulted on their home loans causing the whole market to dump.
Now to the present issue at hand and the main reason the US market could fail. Inflation. For those that don’t understand inflation it can be boiled down to, if everyone has a lot more money than they originally had then everyone is going to buy more things and buy them at higher prices. Higher demand means higher prices. One thing many people may not know is how much money the Fed actually printed in the last year and the disgusting scale at which they did it. Since the start of the covid-19 virus, most estimates are showing that the federal reserve printed approximately ~30% of all the US. Dollars that have ever been printed were printed in the last 12 months alone.
So, we now know that more money in circulation + people buying stuff = higher prices for everyday goods and services. But how can we measure this? Luckily for you there is already a metric that keeps track of this regularly and its called CPI (Consumer Price Index). This keeps track of the prices that consumers are paying for goods and services, The most updated numbers release at 08:30AM EST today. So we can just watch to see if the CPI is rising and then we know that inflation is happening right? Not so much, I really wish it was that easy but here is where covid enters the picture.
If the supply chain of goods and services was unaffected but prices still increased for consumers then this would be due to an increase in demand only. However, thanks to covid this is where the black and white becomes very gray. Covid-19 has affected the supply chains for almost everything sold in the US market, between china lockdowns and shipping issues there is a very obvious supply of goods issue. With this supply chain issue we can expect that prices will rise just due to a lack of supply coupled with the increasing demand, BUT on top of this there is also a worker shortage (this one still baffles me but its happening regardless).
The last factor is the FED. In order to avoid a massive increase in prices across the board due to the hefty increase in USD printed, the FED can implement Tapering policies. These are meant to preemptively hamstring the US market before Prices of goods and services get to out of control. If the FED sees inflation being a risk and ignores it like they ignored issues in 2008 then we are screwed and I wish you all the best of luck.
Here’s where I wrap things up and the start of the TLDR;
TLDR; We have an increase in Demand, a decrease in supply and a decrease in workers, all fueling an increase in prices. The Fed has printed approx ~30% of all U.S dollars that have ever been printed all in one year. If the CPI keeps rising after the supply chain issue is fixed, and the Fed doesn’t start tapering then we enter an inflationary market for goods where a gallon of milk is $16, causing the market to implode on itself because nobody can afford anything anymore.
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September 14, 2021 at 04:39AM