The Fed Is Ignoring Their Own Economic Warnings
Published: 2024-12-10
Status:
Available
|
Analyzed
Published: 2024-12-10
Status:
Available
|
Analyzed
Predictions from this Video
Incorrect: 0
Prediction
Topic
Status
Jerome Powell stated the US government is on an unsustainable path due to national debt growing faster than the economy.
"Over the weekend, I published a video because Jerome Powell, who is the chairman at the Federal Reserve Bank, gave an interview where he said that the United States government is heading down a quote unsustainable path because our national debt levels are growing faster than our economy."
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Powell suggested disincentivizing government borrowing and spending to address the unsustainable economic path.
"And then he went on to say that we need to fix this problem by disincentivizing the government from borrowing so much money and spending so much money."
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The speaker reiterates Powell's concern that debt growing faster than income is a problem, and the solution is to disincentivize government borrowing and spending.
"Now, you don't have to be a financial genius to know that if your debt is growing faster than your income, you have a problem. And that's exactly what he said. And then he went on to say that we need to fix this problem by disincentivizing the government from borrowing so much money and spending so much money."
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Despite concerns about debt, the Federal Reserve is expected to cut interest rates on December 18th.
"And then it looks like things changed because just yesterday, one of the top headlines is that the Federal Reserve Bank is almost guaranteed to cut interest rates next week on December 18th when they meet again."
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Donald Trump advocates for lower interest rates in 2025 and beyond.
"President-elect Trump has his own economic policy. He has been very adamant about wanting lower interest rates in 2025 and beyond."
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China is implementing a new stimulus program in anticipation of potential tariffs in 2025.
"I also want to talk about what's happening in China because China is now unleashing a new stimulus program to combat future tariffs that might be coming in 2025."
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Powell noted that US national debt is growing faster than GDP, a concern due to government overspending and borrowing.
"Jerome Powell essentially highlighted that we are seeing our national debt levels grow faster than our GDP, which is a concern because the United States government is borrowing so much money and spending so much money that they don't have."
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Powell believes the current level of government debt spending should result in a stronger economy and job market than is currently observed.
"And he says that if we're spending all this debt, we should actually have a much stronger economy than what we have today. We should actually have a much stronger job market than we have today."
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Powell's data suggests the US economy and job market should be stronger, given the amount of money the government is borrowing.
"And this is where Jerome Powell really gave an interesting piece of data, which is that yeah, it's strong according to the data, but it should be stronger. We should have an even better job market and an even better economy because the government is borrowing so much money."
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The US is projected to have the third-largest national deficit in history in 2024.
"Remember, in 2024, we have the third largest national deficit in the history of time."
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The US government is spending nearly $2 trillion in 2024 to stimulate the economy, which Powell finds concerning given the economy's supposed strength, contrasting it with past stimulus measures during recessions.
"Which means the United States government is spending almost $2 trillion that they don't have in 2024 to stimulate the economy, to stimulate markets, which is interesting because normally you do that during a time where you are in a down economy, right? We stimulated in 2020 because we were in a recession. We stimulated in 2008 because we were in a recession. We stimulated in 2001 because we were in a recession. But in 2024, we're supposedly the strongest economy of all time. Yet, we keep stimulating the strong economy. And this is where Jerome Powell says we might have a problem."
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Wall Street anticipates an 85% probability of the Federal Reserve cutting interest rates on December 18th.
"And there is, according to Wall Street, an 85% chance that the Federal Reserve Bank is going to cut interest rates again on December 18th, which means we're almost guaranteed to see another interest rate cut."
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Lower interest rates are predicted to increase borrowing by individuals, corporations, and governments.
"Lower interest rates encourage people to go out and borrow more money. It's just like when Macy's has a sale. When Macy's has a sale, more people go and shop. When interest rates go down, more people borrow. And it's not just people, it's also corporations. And it's also the government. As interest rates go down, governments, corporations, people borrow more money."
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An interest rate cut is anticipated because the Federal Reserve historically tends to align with Wall Street's expectations.
"But it looks like we should be expecting an interest rate cut because the Federal Reserve Bank doesn't really like disappointing Wall Street. We've been seeing that as a trend for many years now."
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Despite unemployment being at 4.2%, considered historically good, Jerome Powell believes it should be better.
"Unemployment today is at 4.2%. Which historically over the last 50 years is very good, but General P says it should be better."
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CPI inflation is reported at 2.6%, and while the Federal Reserve claims it's on track for 2%, it has recently shown an upward trend.
"CPI inflation is at 2.6%. Now inflation is one of those things where it just depends on how you look at it. The Federal Reserve Bank says that inflation is not an issue. That we're on this path to 2% even though we're really not going straight down. It's kind of been like going up a little bit in the last month."
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The reported inflation rate may not reflect the actual inflation experienced by consumers, particularly concerning costs like housing and groceries.
"And at the same time, the reported inflation number isn't always the real inflation that you feel because if most of your costs are say housing and groceries, well, that's going up by more than 2.6%."
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The reported inflation rate has not yet reached the Federal Reserve's 2% target.
"However, the real inflation number or the reported inflation number is still not at the 2% target that the Federal Reserve Bank has set."
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Upon entering office, Donald Trump is expected to influence monetary policy by advocating for more interest rate cuts.
"And this is where it's going to be very interesting. I say it's very interesting because it will be very interesting when Trump enters office because he's going to change up our monetary policy. Number one is he's going to push for more interest rate cuts."
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Trump is expected to exert pressure on Jerome Powell and the Federal Reserve to reduce interest rates.
"But you can bet that he's going to put pressure on Jerome Powell and the Fed to cut interest rates."
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Concerns exist that Trump's discussed tariffs may lead to short-term inflation and price increases.
"Along with that, he has been talking about tariffs and there's concerns that these tariffs could potentially create some more inflation or price increases in the short term."
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China has implemented a $1.4 trillion stimulus package, its most aggressive since 2008, to counteract potential tariffs and trade war impacts.
"China recently passed their most aggressive stimulus measure since the 2008 great financial crisis. They passed a $1.4 trillion stimulus as a way to combat tariffs and a potential trade war."
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China's stimulus is a proactive measure against anticipated US tariffs, driven by concerns about companies relocating manufacturing and jobs away from China.
"And they have made it pretty clear that they're doing it in anticipation of these potential tariffs that are going to be coming because China's concern is that if America passes these tariffs, companies are going to pull jobs and manufacturing out of China."
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There is a consumer concern that tariffs will either increase production costs if manufacturing moves, or lead to higher prices if companies pass on additional taxes for products remaining in China.
"But the concern here for consumers is if you take that manufacturing out of China and you move it to another country or you move it to the United States, that means it might be more expensive to produce that product. Who's going to pay for it? or if a company does not move their products out of China, that means there's going to be an additional tax on those products. Who's going to pay for it?"
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It remains uncertain whether companies will absorb tariff-related cost increases, reducing profits, or pass them on to consumers as higher prices.
"Is the company going to eat up that cost and lower their profit margin, or is that cost going to be passed down to consumers, causing the prices of things to go up?"
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Trump anticipates that tax breaks and reduced energy costs will mitigate potential price increases resulting from tariffs.
"And this is where Trump is essentially saying that he is hoping that big tax breaks and energy cost reductions will offset any potential pro increases, cost increases from these tariffs."
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A future video will analyze the historical impact of tariffs on the economy to provide insight into future trends.
"So, look out for that video coming in about a week or so. I'm still doing the research on that, but I'm going to do a deep dive on the history of tariffs. That way, you understand how tariffs have impacted certain sectors of the economy in the past. That way, you can get a better indication as to what's going to be coming in the future."
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Historically, long-term investors have consistently achieved success over extended periods.
"But long-term investors have won decade after decade after decade."
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Two companies, Quorva and Amentum, have been removed from the S&P 500 and replaced by Apollo Global and Workday due to size changes.
"Over the last few days what we have seen is that two companies were just kicked out of the S&P 500. Quorva and Amentum were kicked out of the S&P 500 because those companies became smaller and they were replaced by Apollo Global and Workday."
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Many investors seek individual stocks without proper research, leading to underperformance despite the stock market's historical average annual return of 10% over 100 years.
"Now, if you are investing your money actively, there's nothing wrong with that, but I think there's a lot of people that are looking for individual companies to invest in without actually understanding how do you research a company and keep up with the company, and then they wonder why they don't make money even though the stock market has gone up by around 10% a year over the last 100 years."
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The speaker advocates for the 'Always Be Buying' (ABB) strategy as a winning approach for long-term, passive investors.
"But the way that you win as a long-term investor, especially if you are a passive investor, is through something called ABB. Always be buying is something I created."
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Despite market fluctuations, crashes, and recessions over the past 50 years, the market has shown long-term growth.
"Over the last five decades, over the last five decades, 50 years, we have seen markets go up and down. We have seen market crashes. We have seen recessions. But despite that, the markets have continued to go up over the long term."
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A segment of new market entrants believe in an unending market rally, attributing it to Trump's influence and expecting continued booms in areas like crypto.
"And there's a lot of people now that are entering the market who believe that things are going to go straight up forever. That either Trump is going to make the markets rally with no corrections in sight. That Trump is going to make crypto continue to boom and never fall. That all these things are going to happen and markets are just going to continue to rally."
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Conversely, some believe the market is poised for a crash due to tariffs, new tax proposals, and associated economic issues.
"And then you have the other side who believe that the market's about to crash because tariffs are going to destroy the economy. You have some people that believe that these new tax proposals are going to destroy the economy and it's going to create all these issues."
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The current economic system is structured to primarily benefit investors, rather than employees or consumers.
"Our economic system is designed to benefit investors, not designed to benefit employees. It's not designed to benefit consumers."
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To build wealth in developed countries, individuals should aim to 'own' a business, which can be achieved through investments in the stock market, real estate, or other assets, rather than just being an employee.
"But you have to, if you live in America or another first world country, you have to become a business owner. I'm not telling you to go out and start a business. I'm not telling you to operate a business. I'm telling you to own a business. Invest your money. You could do this through the stock market. You could do this through investing in real estate. You could do this through investing in other assets. But you have to be an owner."
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The trend of investment growth outperforming income growth is expected to continue, necessitating reduced spending to increase investment capital.
"This is going to continue in the future and that means you're going to have to spend some less money. That way, you have more money to invest."
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The easiest entry point into investing is through broad-based funds like those tracking the total stock market or the S&P 500 for diversified economic exposure.
"The simplest way to start is just invest your money into funds like the total stock market. There are funds for that. You can invest in the S&P 500. That is the simplest way for you to get started. Just to invest into broad-based funds to give you exposure to the economy."
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The ABB (Always Be Buying) strategy, involving consistent, automatic investments regardless of market conditions, is recommended for long-term wealth building.
"And then when you do it, follow ABB because markets will crash, markets will go down, but just keep AB. Always be buying. Buy when markets are up, buy when markets are down, buy when markets are sideways. Create an automatic investment every time you get paid. Whether it's every week, every two weeks, or every month, every time you get paid, just invest some of that money before you see it."
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As investors gain sophistication, they can explore advanced opportunities such as individual stocks, real estate, startups, or more speculative investments.
"There's your path to wealth. Now, as you get a little bit more sophisticated, if you do decide to get a little bit more sophisticated, now you can start to look for more advanced opportunities. You can start to look for more individual companies. You got start to look for real estate investments. Maybe you look for startups to invest in. Maybe you look for something a little bit more speculative."
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Building wealth is impossible if one spends all their income; reducing spending is a prerequisite.
"And in order for you to get started, you got to stop spending all of your money because a lot of people right now are spending all of their money. And you're never going to be able to build wealth when you're doing that."
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The future market performance for the coming years (2025-2027) is unpredictable.
"Nobody knows what's going to happen in 2025. Nobody knows what's going to happen in 2026. Nobody knows what's going to happen in 2027."
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A strategy for wealth building involves maintaining an emergency fund, consistent investing, and holding capital ready to seize investment opportunities.
"And the way you do that is always have some money put aside to protect you. Always keep investing your money and have money ready to invest to capitalize on investment opportunities that come your way."
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Investing is a long-term wealth-building strategy, not a path to quick riches, with realistic expectations set for a decade or more.
"Investing is a long-term game. If you're looking to be rich by next year, don't invest your money. You're going to be very disappointed. But if you're looking to build wealth over the next decade or two decades, investing your money is the way to get there."
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Successful investing requires relinquishing immediate access to funds by placing them into assets with growth potential.
"But you got to be willing to part ways with that money to put it into something that can actually grow."
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Wealth building is predicated on financial education, making sacrifices to free up investment capital, consistent investing, and ongoing research for improved investment strategies to accelerate growth.
"And that's why I want you to be able to build your wealth. But that starts with your own financial education. And this starts with you making some sacrifices so you have money to invest. So you got to have the money to invest. You got to invest the money. And then you got to research how you can make better investments. That way you can grow your money even faster."
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