Why This "Perfect Downtrend" Won't Go Away
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- čas přidán 13. 09. 2024
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This video discusses the alarming trend of declining interest rates and its impact on the economy. Real interest rates, which factor in inflation, have been steadily decreasing for decades, leading to significant consequences. Discover the main reasons behind this downward trend and why it is likely to continue.
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DISCLAIMER: This video does not provide investment or economic advice and is not professional advice (legal, accounting, tax). The owner of this content is not an investment advisor. Any securities, trading, or market discussion is incidental and solely for entertainment. Nothing herein shall constitute a recommendation, investment advice, or an opinion on suitability. The information in this video is provided as of its initial release date. The owner of this video expressly disclaims all representations or warranties of accuracy. The owner of this video claims all intellectual property rights, including copyrights, of and related to this video.
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless." - Thomas Jefferson
Jefferson was talking about a foreign bank on foreign soil, like the british central bank. Not a domestic one.
Issue of their currency sounds like money printing, you better believe if multiple private banks could print money we would get absolutely raked, but maybe I am misunderstanding the quote
That’s why you should buy Bitcoin.
@@jurgen9568banks are global now. So this statement applies. Our dollar is used around the world. That’s why American didn’t use the British pound when we got independence, we used green backs, our own currency.
@@ryaj2356 No it doesn't. Jefferson was talking about central banks. The existence of a foreign held central bank was intolerable since no matter how hard Americans worked the foreign central bank could simply print money and get access to the products created by Americans. Private banks are irrelevant since they can not print money. It doesn't matter that private banks are global now. The issue is about who controls the entity that issues the currency.
I think many people aren't putting the pieces together with why the fed is explicitly saying they will continue to raise interest rates even though inflation is clearly on a downtrend, one word: housing. Housing is 35% of the CPI and quite frankly hasn't budged much even with the massive rate increases. You can argue the reasons why housing isn't moving but the fact is that the fed won't be done raising rates until the housing market crashes the same way stocks did last year. Housing is a lagging indicator so it will likely crash just as much as stocks did last year but with a lag to it. If you've recently bought a house I hope that you have a steady source of income because you're about to have to buckle in for the long term as home prices fall drastically. If you're in the market to buy just try and hold on a little bit longer that $300,000 - $500,000 home you're looking at is about to be come a $200,000 - $350,000 home soon.
For refence I have a master's degree in economics by the way. Anybody who's trying to tell you a housing downturn isn't coming is trying to fool you. Construction costs are coming down dramatically and with margins still high more builders are building (which is why housing starts were so much higher than expected last month). People say this won't be like 2008 because we have a lack of supply but they're not accounting for the frustrated home owners who CAN'T move because their rates are locked in low as well as the overzealous builders wanting to cash in on the boom. As soon as people see how dramatically home prices are going to fall many of them will get scared and sell even if they lose their 3% rates which will spur on even more selling. The crash has only just begun.
I completely agree, the supply gut is temporary. Once we start running out of new homes the industry will respond by making more, this has already happened as you pointed out. Also a lot of individual investors and investment companies are holding properties, they will panic sell as prices continue to fall, opening up even more supply and fueling the down trend. This housing bubble is bigger than 2008 in fact.
Lol your example of why housing has to decrease is comical. What a waste of a degree
Even as a home owner I hope this is true. So many people out there that cannot afford to live in cities and cannot afford a house. I have a 2.65% interest rate and my home is double what I paid for it so I don't care if it crashes we are not moving anywhere anytime soon. Hell if stuff gets really affordable I might just be able to buy that mountain house I have always been dreaming of for my retirement. Let it crash so people can afford to live is what I say.
@@insecwow2972 Cope
Canada is in a worse predicament than USA
for housing. It's so red hot it ain't funny. Going to hurt.
To my understanding this just proves how much we need an edged as an investors because playing the market like everyone else just isn’t good enough. I’ve been quite ensured about investing in this current market and at the same time I feel it’s the best time to get started on the market, what are your thoughts?!
So if we are looking to buy a house we should just wait ~30 years?
No you should go back in time 50 years. There’s no hope left
Interest rates should come down in the next few years driving home prices higher so buying now wouldn’t be a bad idea if you can refinance when rates eventually come down. Hopefully sooner then later.
If you need a house then buy or build a house, not complicated.
Go work hard, stop expecting free money.
@@jwonz2054explain to me how my mother who is a salary worker with 40+ years in banks who always works over time, has moved jobs.
Still can't afford a house. She only has debt on her car, which is the cheapest one on the lot. Is not hard work it's who you know.
@@marksweeney5237 imo we are headed for a recession soon and the fed will support the market with lower interest rates. FOMC interest rate dot plot shows expected interest rate cuts starting by the end of the year/beginning of next year.
This is one of the very best financial channels. No question about that.
Canadians debt to income ratio keeps breaking new records, a new car is 50k+ and homes in the biggest cities are 1m+
Something’s gotta give.
More like take, they take your home and car and then they’d sell to foreign buyers.
Canada is too lax on foreign investments.
Easy place to launder money for big gains.
@@mr2_mike Canada is complex there are like 12 issues negatively effecting home prices at the same time and almost nobody has any will power to fix even one of those issues
The prime age population growth doesn’t mean all the growth will be working and productive to society. Many will be looking after senior loved one, incarcerated, died early, have disability or simply don’t want to participate in the workforce. So I think the US prime age will be negative in terms of labor participation, and as a result the debt will continue to rise and higher interest rates can’t be sustained. We will be following Europe, Japan and China trends, but less severe impact on our economy.
Simply put - People getting married, and couples having kids is unbelievably important for an economy. Our society has drastically changed, and so many people are getting married later, or not getting married at all. With that, even fewer married people are having many kids, or any at all. Government needs to lower taxes on families... there needs to be a real incentive to start and support a family. It's never been harder than it is today.
This is coming from a guy who is married with one kid living on a single income. It's not like it used to be.
I have to disagree with your final conclusion that this is a "perfect downtrend" that won't go away with interest rates, but actually I agree with the logic that got you to that conclusion. You have to understand that the borrower is allways slave to the lender so borrowers allways have it harder which is why interest rates allways rise in periods of inflation even if it hurts borrowers and the economy. You also have to understand what the difference between nominal and real rates is. I think the trend is more likely to be interest rates trending higher for a long time because you can deleverage the high debt loads that way as long as the nominal rate the bank sets for interest rates is lower than the inflation rate for example if bank rate is 5% and inflation is at 10% then the real rate is -5%. That would mean the borrower gets 5% purchasing power from the lender every year to help pay back debt.
This was the best video I've seen all year on these subjects. Succinct and accessible.
I agree that we cannot handle positief real rates, but that doesn't mean we won't get really positive nominal rates. If we get really large consistent nominal growth due to inflation one could foresee a world in which the debt stock is cut dramatically just by that and we can return to positive real rates ones the demand for savings outstrips the supply again. probably some point in the 2030's when the dependency ratio is so high that we will need the workforce to basically work for less then it could get, by promising them more in the future. So basically old people take from current working people, but because the future ratios of young to old are not likely to be as bad as the ones experienced in 2030 one could credibly promise them a better retirement as a replacement for having to work for less money at that time while caring for all the boomers.
The proportion to GDP concern makes far more sense when hard currency is in use. America dropped the gold standard in 1971 so that GDP ratio loses a great deal of its importance. Inflation becomes the key indicator. Lately that metric was worrisome but has been reduced to 4%, a not uncommon rate during both Clinton and Reagan expansion periods.
Sustained higher interest should see it level out at 2-3%, or lower if the Fed tweaks it just a bit to bounce it off 1.9% to achieve the 2% goal. Also note at 4:00 that the ratio improved at an impressive rate 2012-2015, in the thick of the Obama molasses recovery everyone complained about. Be careful what you wish for.
Good analysis, but there is a major problem: deglobalization will cause inflation that must be fought off with positive real interest rates for many years to come.
High interest rates means a higher cost of capital, which makes moving / onshoring supply chains more expensive. Positive interest rates also mean there is more money in the economy because of paid interest.
This isnt the 1970's; inflation isnt being caused by private bank lending, which is actually somewhat depressed.
@@p51mustang24It's about excess wealth of the 1%. Taxes should go up for the benefit of all society on the 1% and large multinationals.
Just found your channel. Love the fact based work you put in
Well done!!!!
At some point people won't be able to take on any more debt. The real estate sector and auto sector will have to come down or remain in place. If our population is barely growing, some even say declining in the US. The markets have to cool off. There simply isn't enough people to demand more. If anything, within time, there will be a surplus. The only reason real estate hasn't yet is because it's the foundation of our economy, it has to.
Your forgetting all the foreign investment. The fiat currencies of the world are falling. Rich people smell something in the air. They are buying land, homes, cars whatever they can dump that soon to be worthless cash on.
@matthewsmith2362 I mean, that would be true if they had people to fill said residential and commercial real estate. In large cities the commercial real estate sector is one the verge of collapse, hence the push to return to the office. Also a lot of Americans are leaving the US now in droves. Why stay here if there are cheap houses in Japan or elsewhere. Even if foreign investors buy up land here. There is cheap land everywhere in countries that are imploding in population like Japan and china
Holy moly this is a high quality informative video. Thanks!
Good to see viewership of your channel is growing at a much faster rate than population. It shows there is an appetite for common sense.
This is really clearly explained. Thank you for the quality content.
Raise those rates and keep them there.Don't buy on debt.
Well I think what this means is we will see constant boom and bust cycles with the booms and bust getting bigger and bigger.
and maybe more often?
Great video, the big question is how the US will clear its debt burden?!
Taxpayer’s money or Fed’s printing machine
Brilliant overview!
I really like your perspective and willingness to criticize. You explain things well & I find your videos useful in trying to understand the market as I look to buy my first home.
The media is currently barraged with a lot of economic data right now. It takes a lot to see beyond the whole ocean of news on focus on what is important, which is that no matter how low stocks go, they always bounce back. I really ignore all the news and keep investing. I recently allocated about $121k to put in the market as we anticipate a crash. Any recommendations?
lmao "many people are suggesting".. shows Bob Elliots tweet. Love the back and forth
For the most part, I agree with your analysis. However, according to the demographic data I've come across, the US won't go through the type of population growth you mention. Will we have an increase in general population? Most likely. Will that be because of domestic birth rates? Only somewhat. Current birthrate in the US, depending on which source you use, is around 1.7 kids per family. In order to have population growth via birth rates, we would need to have 2.1 kids per family. What could make up for this is immigration, but given the ideological and political elements at play in the US, I have my doubts. Accordingly, that would mean we will probably have declining population growth for the next decade or two followed by population decline. From that, we'll get a steady decline in prime age cohort economic activity, both in terms of consumption and in terms of labor contribution (not to mention how immigrants don't consume goods and services at the same rate as natural born citizens due to economic disadvantages).
As for immigration, most countries except South Asia and Africa are seeing flattening population growth rates or negative. When a country gets to negative or flat population growth, they stop sending immigrants to the US. Europe used to send tens of thousands of immigrants a week to the US 100 years ago. Now it's barely anything. East and Southeast Asia will stop sending immigrants as will Mexico. Unless US accepts tons of Indians and Africans in the next decade, the growth rates are going down big time.
you've been listening to peter zeihan again
Oh we are growing the population all right. Just not through domestic births. But forced immigration.
Immigration
@@KippinCollars this is an underrated point that most people miss. The united states has negative net migration with Mexico, and it is mostly central Americans that are coming here. That is set to change because of demographics and there will be wayyyyy less people immigrating here in total soon enough.
Excellent. Excellent! _Excellent work!_ I strongly hope you will include the various other _Dynamics_ that affect the forecast for this economy - such as the three P's; population, participation and productivity (because it's _Not_ Just population demographics), How the population is being artificially and ... likely intentionally propped up by immigration (and the way International policy _incentivizes_ the oppressions of other nations), and most importantly, the *prospect of a Global Exchange Currency alternative/competitor.* As in the majority of the world - where the three P's are favorable - is fed up with the Empires "Exurbanite Privilege", and could _potentially_ rapidly collapse the entire American economy.
I hope you will tackle these very difficult issues with your data driven expertise.
I‘ve been 75 for over 50 years now. Thanks for the video!
Great video Eric, thanks so much for your work. This helped me understand the phenomenon I saw in the 90s vs now more clearly
Great job!
What are our options?
Excellent content...thank you.
Thought provoking video. This will take me down the rabbit hole of dependence of interest rates on population growths.
So, basically we are screwed of having any prosperity. I think it is a good thing, because it will show people how flawed of our entitlements, because just looking in human history it was never so in the first place.
COVID show me how entitled and selfish people really are, because bad times like that does in someways bring people together.
So, putting 2 and 2 together of how nasty people are and a doomed economy will see countless of unrest.
God guns n guts
Just found you from the interview you did with David Lin, awesome job
Can you recommend some good books on business cycles.
Interest rates which are stated are unfortunately far too vague as a value. Real interest rates are a really bad way of analysing changes in the economy, employment and investments. Inflation rates are way higher and far too volatile to provide valid assumptions. The crash is coming in the dollar which will destabilise and eventually reset the economy.
Absolute gold. Again.
Eric, The problem is all the things you mention like Demographics & debt. I agree with but this is at work very slowly in the background. I don't believe the Fed is going to consider this in the short-term. If we have a Fed that is trying to play Volcker he can absolutely make real-rates go much higher in the short-run just from following what he did (Fed Funds significantly higher than core-PCE).
Since the dollar was taken off the gold standard in '71 too much debt has been accumulated in the economy - far more than can ever be properly serviced by GDP. So now the only tool left to slow down hyperinflation is raising interest rates, which has the effect of breaking everything and causing increasingly severe recessions. Not looking good boys.
Very succinct answer sir. 👏
The takeaway for the average person is that cash will keep being trash, and saving cash is the stupidest thing you could do. Money has become debt and not a store of value anymore, which is really bad for average workers, they're forced to invest to keep up with the declining real interest rate and that will make them vulnerable to ponze schemes, fraud and making bad investment
How the fuck is cash trash when you can get a crazy good return on US Treasuries? You make no sense at all.
how myopic. workers are paid in debt currency
you have to save cash for a downpayment for a house its not the stupidest thing you can do.
Japan revisited from the 80's. America could not see what low interest rates would cause
So how does it end?
Where do you get all your data from?
Did the prime age growth rate account for immigration?
Make a video on how the capitalist system works, you seem very knowledgeable on political economy. For as bad as the future may look, the rich just keep getting richer, am I wrong? These "crises" are a cyclical part of the system, and have happened since the early 1800s.
So the government is the problem…. Not surprised. Imagine if we stopped printing and actually stayed in a budget. Americans would benefit immensely, our dollars would actually be worth something and there would be way less dramatic recessions and expansions.
So the, cash will continue to be trash until a reset happens.
Buy fairly valued stocks and real estate, per usual. And don't get into debt. And keep your job. It's funny how on an individual level, the strategy to follow mostly stays the same.
Buying a bread on your table...
Avg wheat prices in 1980 $4.5690 (us data)
Avg median home price in 1980 $64,600 (us data)
----
Avg wheat prices in 2023 $7.6584 (us data)
Avg median home price in 2023 $436,800 (us data)
----
Wheat prices should rise 4x times higher (to about $31! per bushel) to get a touche with houses!
Good old times...
rates will reach negative this time just like the ecb
This reflects the situation in the developed world since about the mid 1980's. But... the scenario breaks down in situations where debt loads become unsustainable and the unsustainable debt is simply wiped out... by either by high inflation (if your "lucky") or a major depression (when your luck runs out). It was nice while it lasted... but the party's over. I'm betting on a worldwide depression.
I resent them calling my Social Security and Medicare ballooning entitlement programs.
That is exactly what they are though because the costs for these things are ballooning.
@@bengardener8928 What does that have to do with the fact that I already paid these benefits during my many working years. Besides the Baby Boomer era of retirement will eventually come to an end and that will bring down the cost of these programs.
You are forgetting some very key factors about demographics, that throw all of your assumptions all out. The prime age demographics that would normally spend the most money will not be the ones spending the most money over the next 10 years. This due to as you mentioned the extreme high levels of debt carried by the prime age populations. You have to remember that the age demographic that is currently transitioning into retirement have been saving pretty aggressively over the last 10 years which is why we have seen interest rates so low, however now they are retiring, and starting to spend. Essentially shifting your prime age graph completely to the right, and sustaining elevated levels of inflation across the world for at least the next decade.
The US needs debt destruction (defaults) on a massive scale to reinvigorate the economy. That is why, despite being a conservative, I am not opposed to complete forgiveness of all student debt. Talk about an economic boon! Defaults are basically a wealth transfer from creditors to debtors. Who is filling those roles depends on the sector. A debtor could be an individual with credit card debt or a commercial real estate developer. A creditor could be a commercial lender or a US treasury bond holder. We should just make every debt instrument take a 50% loss across the board. I am noticing that you left out India in your prime age growth chart. I suspect their growth is much greater than that of even the US. Explains why they are getting so much love from the international community lately.
One man's debt is another man's asset. When you forgive a debt, you have to seize an asset.
Finally someone speaking the truth
Amazing work Eric.
I'll watch these anyway though because I may learn something. About economics, not about entitlements.
Can't see a problem in the UK what with all the guys coming over on boats.
How does immigration figure into all of this? I assume that immigration is not counted in the population numbers as you covered them (.7% growth US birth rate).
yeah good luck trying to guess those numbers
@@utpharmboy2006 That's my point.
Less population => less productive work hours 'produced' => less consumption
Social Security is NOT an “entitlement program”, it’s literally people claiming the money they put into the system. WTF.
en·ti·tle
/inˈtīd(ə)l,enˈtīd(ə)l/
verb
past tense: entitled; past participle: entitled
1.
give (someone) a legal right or a just claim to receive or do something
Its not debt, or demographics that drew real interest rates down, its globalisation.
Wdym?
Focusing on debt and demographics = globalization
@@CamelEnjoyer using cheap labour from China, Thailand, Vietnam, India is what created gloabalisation.
Thank you.
@myyoutubeacct Get thee behind me bot!
@myyoutubeacct Jehovah hates a lying tongue, like the tongue that breeds these liars and bots!
@myyoutubeacct Jehovah hates a lying tongue, like the tongue that breeds these liars and bots!
So would you call this spike in nominal bond rates a gift for bond longs?
Japanese economist, "hmm, looks familiar..."
The current recession started in ‘19, I can’t stand when statistics show it as a weekend long thing in ‘20..
⛈☔️🇺🇸
So is your predicted recession happening yet or not? "any day now?"
The USA Federal Government needs to cut spending and cut debt, otherwise we're on the brink of hyperinflation.
Fantastic!
pleeassse do a video about demographics in canada. we have a very different problem high population growth but declining productivity
that's because you are all rentiers, which by definition adds no value
History doesn't repeat but sometimes it rhymes! ;)
the Cantillon Effect is the primary cause of the wealth gap.
If demographics consistently feed into the various problems we're having does it make sense to increase immigration to supplement the lack of baby-making? If so, does an analysis of how to incorporate a large number of immigrants warrant study?
I have often brought that up amongst people I talk to. I've thought it's possible that the birth rate is the real reason behind abortion bans, politicians just focus on the moral ambiguity as a red herring.
It's been interesting to see a complete lack of support for immigration reform on either side of the aisle, nobody wants to push for it. You would think that Republicans, who often fixate on border security, would be in favor of it especially considering the last administration to do it was Reagan's. The increased tax revenue would solve the Social Security problem before it becomes a disaster.
and if they integrate and become "american" they will also not have kids? what then?
why not solve the root cause instead of stealing educated immigrants from third world countries so that you can exploit them while on a work visa?
Just watch Canada. Most immigrants into Canada last year since they started getting Europeans over here to settle the land.
It would make even more sense to give tax breaks and incentives to families that are working to have more kids.
But it's probably a lot cheaper to just import the people you want, so that will never happen.
@@shabustinkslol We do have a bunch of that (I know since I benefit from those policies), but it's not having the effect desired wide-spread. China and Russia have been trying government policies to get people to have more kids and those aren't working either. Since America attracts many immigrants it seems like we could take advantage of that situation.
We do appear to at a historical nexus……
hey, didn't you predict a crash this year? Still waiting.
@@andrewp8675 he's just making stuff up to cover his terribly bearish and clickbaity call.
I am gradually leaving Bob's island to join Eric and Alf in the recession camp
Low wages and rising debt = No long term savings. The economic collapse will happen again and again and again. Recession after recession.
Hot dog!
Hot dog!
Hot dog hot dog hot diggity dog!
Can someone explain like im 5. I get some of it but not all of it.
My interpretation is the 400,000 home you want is going to be 600,000 in 10years.
Our economic growth is determined by spending.
Spending is a function of how many people are spending and how much they spend. Call it total spending.
You can increase total spending by increasing the amount of people that spend, or by increasing the amount each individual spends. If your economy requires X amount of spending for people to have jobs, and the amount of people that spend can’t be increased, then you need to increase the amount each person spends. To do that, you need to lower interest rates so that people can take on more debt.
However, we are to our noses in debt. So don’t expect real interest rates to rise to the levels they were in the 80s because it would be bad for the economy.
We need to lay down debt before we can borrow again. Don’t expect much growth unless we can figure out to have more kids or get more immigrants into the country.
@@ericfregoso2266 thank you good sir. I feel smarter already
This didn't age well. Clickbait rescission predictions and doom and gloom are aplenty.
It's like walking down a staircase.
I guess I will invest in India and later in Africa then
For native Europeans their government should give free housing for every individual in order to be able to make children. Socialistic as it is but this won't change until the young feel financially secure to raise children.
Sure sounds like "capitalism is unsustainable".
In your 60s, you spend on healthcare, not trivial junk.
see Japan...
You have many things backwards, consumption does not benefit the economy, you are wasting recourses, production is what benefits the economy. Debt is a function of a debt cost or interest rates, if you can borrow for cheap, people will do it and also debt increase is only possible when central banks are printing additional currency, in a free market without central banks you can't do that, debt is a function of supply and demand, and people decide how much interest they want to charge for a loan. Seems that you can't see the cause and effect in this financial chain.
Anderson Gary Brown Matthew Martinez Robert
"clear its debt burden" = depression. Tell me if I'm missing something.
Bitcoin.. hate it or love it...ill be back in 10 years... inflation is no more... gold is rare? lol
We should all just rent thats what they want
I'll make sure this one is paid first.
Lee Matthew Jones Susan Young Angela
One word … ponzie
Moore Laura Taylor Nancy Lopez Dorothy
Anderson Betty Robinson Helen Walker Cynthia
Miller Jeffrey Walker Charles Robinson Frank
Lopez Michelle Rodriguez William Young Deborah
The boomer nightmare continues. Worst generation ever.
@edubmf Why blame them though? The US has a cultural problem as things that lead to a healthy demographic are culturally unpopular there, such as traditional family structures and a positive view of fertility. Those artists and cultural leaders which promote negative views of family and fertility likewise typically sell fairytale economics detached from reality, selling idiotic life choices and fantastic government policies to the public.
!
It's like this dude actually has eyes to see and a brain to think. Other fin-gurus are monkeys trumpeting the same talking point swinging branch to branch.
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