laughing and it wouldn't raise rates! Because at this point it was clear that  

raising rates will only create a recession.  The world is still suffering from the pandemic.  

Entire cities in China are a lockdown which is  causing a shortage of products in the market.  

The fed was willing to swallow an 8 percent  inflation instead of stopping the economic  

wheel. However, the absolute opposite  has happened. No one expected the fed  

to raise the rates by 0.5 percent. It's the biggest spike in 22 years.  

The only reason that it probably did that is  that inflation was seriously getting out of hand. 

Inflation is not a joke. Take a look at  countries who didn't take inflation seriously.  

They have destoryed their economies from  Weimar republic in 1920s to Veneziella in 2013.  

But the worst one was in Hungary in 1946 right  after the second world war. At some point  

inflation reached 13,600,000,000,000,000%, that's  a lot of zeros. Prices doubled every 15.6 hours.  

Imagine your Starbucks coffee more than doubles  every morning. How would you set prices, salaries,  

or taxes? The economy stops functioning, people  lose faith in the currency. They start bartering,  

exchanging goods for goods since no one knows  how much the currency would be worth tomorrow.  

If you owned a business, would you sell candy for  a dollar or two? how do you save money? There are  

millions of questions that need to be answered. Your savings by the next day would lose half of  

their value. I mean, if an 8 percent inflation  rate already caused such a big problem. 

Imagine what happens if it's just over  a 100 percent, leave alone with so many  

zeros (13,600,000,000,000,000%). During the height  of hyperinflation, Hungary's highest denomination  

bill was the 100,000,000,000,000,000,000 (One  Hundred Quintillion) pengo, compared to 1944s  

highest denomination, 1,000 pengos. So,  it's far better to have a short recession  

than let inflation get out of hand. The question is - why raising  

rates is so important? You see, the modern economy  

is entirely based on debt. The fed has absolute  authority over the economy since its the source  

of the dollar. It creates the dollar and lends  it to financial institutions such as banks and  

then the banks would lend them to businesses or  individuals in form of mortgages or student loans.  

The moment the fed raises rates, banks  will have to raise their rates as well  

which will make borrowing more expensive which  means fewer people will be able to borrow money.  

With a 50K dollar salary, you are eligible for a  much bigger loan if interest rates are 3 percent  

than at 6 percent. Which means when interest rates  are raised, less money will flow into the economy,  

which will slow down the economy and vice versa. The economy goes through cycles.  

It starts with an expansion period, keeps  growing until it peaks somewhere at the top,  

and then slowly starts cooling down and eventually  

falls into a recession and even a depression in  some cases when the recession lasts too long.

Once it reaches its bottom line, it  starts growing again, it returns back to  

the expansion period until it peaks again,  and the same cycle happens over and over. 

What matters is if the cycle overall keeps moving  upward. A year before the pandemic, the economy  

has reached its peak, it was just waiting for  something to pull it into a recession which  

was the pandemic. In fact, it was the longest  economic expansion in the history of the US. The  

last recession wasn't as bad as it could possibly  be since the fed went beyond its limit by throwing  

literally trillions of dollars into the economy,  the only downside was that we quickly got out of  

the crisis and have reached the peak again since  inflation now is growing faster than the economy. 

Haven't you seen how asset prices such  as stocks, houses, or even crypto rose so  

dramatically in such a short period of time.  The last 2 years were absolutely heaven for  

crypto and tech stocks. I mean some stocks  doubled over such a short period of time.

And how do we know that we have reached the peak?  Inflation is growing faster than the economy  

and getting out of hand. That's why the  fed raised the rates in the first place. 

0.75 percent isn't really super high since  back in 2019 when the economy reached its peak,  

the fed raised the rates to 2.4 percent. So,  what's going to happen over the course of the next  

couple of years is that the fed will most likely  keep raising rates to stabilize the economy.  

I guess such an aggressive action from the fed  was to let everyone know that the fed is ready to  

take any necessary action to slow down inflation  and isn't just laughing since most people were  

confident that it wouldn't dare to do so. And now the question is, how will that  

impact the stock market, real estate, or crypto? The answer is pretty simple and straightforward.  

A rise in interest rates will reduce the demand  which will inevitably lead prices to fall.  

Bitcoin is already down by over 9 percent  at the time of this script and it might fall  

further by the time the video is out. The sp500  is down by 4 percent and the Dow Jones by 3.4%.  

That doesn't mean they will keep falling but  there is definitely going to be less money flowing  

into volatile assets such as crypto, or tech  stocks. The stocks that seemed like there are  

going to shoot to the moon will begin to  slow down, and the companies that suppose  

to go bankrupt during the pandemic will finally  face the reality where they will have to grow  

without the fed's cheap money. So, it's  absolutely normal to see some stocks to dwindle. 

Will that stop inflation? well, the answer is both yes and now. 

First of all, that's for sure is going  to impact house prices for example.  

Just imagine for a moment what's gonna happen to  mortgage rates. They are going to be so expensive  

that people would rather choose to rent than  buy which means prices will begin to fall.  

How much they will fall is remain to be seen. But  a housing crisis to a certain degree is possible,  

however with such a shortage of houses in the  market, no one really knows what to expect. 

But at the same time, not all inflation  is a result of the fed's actions.  

The5 0.5 percent increase in rates isn't going  to bring down gas prices since they are mostly  

settled by OPEC, an organization of exporting  petroleum countries that control the demand  

and supply of oil in the market, and the war in  Ukraine that's creating scarcity in the market  

which is leading to such high gas prices  which are causing inflation worldwide. 

But what worries me the most is that its going  to lead to a recession. The pandemic crashed  

supply chains, destroyed what companies have been  building for decades and now higher rates mean,  

these companies will have fewer resources to  res tore what they have built. When the budget  

shrinks, companies will have to cut expenses,  which can easily lead to higher unemployment since  

wages are the biggest expense for most companies. The consequences aren't going to be clear  

immediately, it's going to take  some time because 0.75 percent  

isn't 5.25 percent like it was in 2007. It's easy to criticize the fed but it's  

not easy to manage such a crisis. On one side, we  just got out of the pandemic that's not over yet,  

on the other side, there is an entire war  taking place in Europe (russia/ukraine) which  

is causing oil prices to shoot to the moon and  that is raising prices for everything from the  

cost of driving your car to your groceries. Thanks for watching and see you in the next one.