The federal government usually can only pick one: a massive economic recession with millions of fortunes lost over stock, or soaring inflation and price of goods. Unfortunately for everyone living in America, they have chosen both. ‘The Everything Bubble’ is popping.
An economic bubble is when something is priced way over what the actual value of the product is. People keep investing in the so-called bubble because they believe that the price will keep rising and therefore they are willing to pay ridiculous prices for a certain product.
For instance, in 2006 to early 2007 people were willing to take huge loans to pay for overly-expensive houses because they thought they would make profit out of the seemingly ever-expanding house prices.
However, because the banks were giving out too many loans that people could not pay back, it seriously hurt the banks, and the federal government had to significantly raise interest rates from 5.1% to 6.63% to try and counteract banks failing.
These interest rates caused two economic recessions. It caused people to be unwilling to take large loans, hence unwilling to buy a house for an unreasonably high price, causing demand to plummet, and along with it the house prices, and it caused people who had already gotten the loans to have worthless houses with relatively massive loans with now increased interest.
As a result, over 6 million Americans either lost their homes from foreclosure or bankruptcy.
The bright side, however, is that the federal government fully committed to raising interest rates, and banks were able to recover from the crisis, leaving the Fed able to lower interest rates temporarily to 3% to offset the general population’s economic loss.
Now imagine this: What if the federal government had only half committed to raising interest rates? Wouldn’t that mean that people would have still been scared into not getting larger loans and relatively still popped the housing market, leaving millions homeless but still not helping the banks recover?
What would happen if people were not only increasing a bubble because of one of the lowest interest rates in American history (0.75%) so people could take loans easier and also the general economy was getting an injection of over 6 trillion printed dollars?
This horrifying scenario is what the everything bubble is. Since everyone who is over 18 and has had a job that does not get an income above 150,000 a year is getting unchecked consistent thousands through stimulus checks, and practically interest free loans to spend on investing, making almost every investment; whether it be retail, stock options, or crypto currencies, be extremely overvalued.
The federal government had been printing and putting so much money into the economy, in fact, that inflation (or the devaluation of currency hence the increase of consumer goods) had increased 8.5% in 2022 alone. This meant to stop inflation, they would have to raise interest rates.
However instead of raising interest rates to a place where they would actually subset the rampant inflation from the stimulus checks, they would only increase them from 0.75% to 1%. Both scaring investors into selling their investments at an accelerating rate, and also not even slowing down inflation with economists still predicting a 5.5% increase of inflation later this year.
The perfect storm has brewed, and even with general options investors losing 400 billion dollars on crypto and 7 trillion dollars in the stock market, America is still in the eye of the hurricane, sell your investments while you can, for in the short term this recession is going to ruin the financial futures and fortunes of millions of people.
However after the storm clears, the economy will get a fresh start. Since the price of everything is likely to either crash or get significantly cheaper; investments will be far more affordable, buying houses and starting businesses will be inexpensive, and old bad business and federal government strategies that started the recession will be re-written.
The harder the recession the more innovation that will follow, and if that is true that America will be going through a transformation like never seen before. For the good or the worse, everything will change.