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  • In just a few weeks, 36 million Americans applied for unemployment, the unemployment

  • rate reached almost 15 percent, it might not seem high, but during the 2008 crush, when

  • the world economy collapsed, unemployment peaked at 9.6 percent.

  • The upcoming crush is closer to the great depression of 1929.

  • To understand how we ended up screwing so badly that we are on our way to the greatest

  • financial crises humanity has ever faced, we have to understand a few things.

  • How does the economic machine work?

  • What role do the central banks play?

  • And what exactly we did wrong.

  • The elephant in the room

  • Before we get started, let's address the elephant in the room (Federal reserve).

  • When you need some extra cash, what do you do?

  • You probably give a visit to your local bank.

  • But what do the banks do when they don't have money to lend it to you.

  • They call the central bank, or the federal reserve in US.

  • The central bank's job is to protect the currency of that country and grow the economy by controlling

  • the supply of money and, most importantly, keeping inflation in check.

  • If the economy isn't growing, the central

  • bank will lower the interest rates so that borrowing money will be affordable.

  • More people and Businesses will borrow to expand, which will stimulate the growth and

  • will get back the economy on its knees.

  • Worst case scenario, the central bank will print trillions of dollars and throw it into

  • the economy as they did back in 2008.

  • If, on the other hand, inflation is rising too fast.

  • The central bank will increase the interest rates where borrowing will simply be too expensive

  • so that fewer people will borrow, and less money will be spent; therefore, inflation

  • slows down.

  • the machine that keeps the world running

  • You probably have heard that whatever rises will definitely fall.

  • And that is the case with the economy.

  • In fact, the US broke the record of the longest economic expansion in its history.

  • The economy has four main stages, and it starts with expansion.

  • It peaks somewhere at the top and plummets, which is also know as contraction, and once

  • it reaches the lowest point, it rises again.

  • During the expansion period, the economy is booming, the stock market is rising, and it

  • seems like the growth will be forever.

  • Interest rates are low and Businesses are borrowing and expanding as fast as they can.

  • Investors are throwing money at the stock market, and everyone is happy.

  • Unfortunately, it doesn't last forever.

  • At some point (peak), the central bank is going to say, "mmm, inflation is growing too

  • fast, lets slow it down."

  • So the central bank or the fed will increase interest rates to keep the inflation under

  • control.

  • The economy has reached its full potential; it stabilizes and grows just enough to cope

  • with inflation.

  • But investors are used to extraordinary returns.

  • For instance, in the last ten years, iPhone sales have been increasing, but this year

  • they didn't since the economy isn't growing that fast, that scares off investors, and

  • some of them slowly start pulling out their money.

  • Businesses like Apple will do their best to maximize their sales to keep investors interested;

  • however, at some point, the supply will outweigh the demand.

  • There are just so many people who want an iPhone.

  • So businesses slow down, that pushes away investors, which slows down further the market,

  • but businesses have somehow to survive, they will start cutting cost.

  • First, by firing the least important employees, so unemployment starts rising, which means

  • the demand starts falling in the market overall.

  • Businesses can't even take a loan since interest rates are too high since the fed increased

  • them because inflation was too high.

  • That's how the economy slides into a recession (contraction).

  • People start to save since they are afraid and uncertain about the future, which means

  • the demand in the market falls even further, which means more businesses suffer, which

  • means more unemployment.

  • It's a never-ending cycle that will keep drugging the economy down.

  • Usually, the fed intervenes by lowering interest rates to save the economy from the recession.

  • But it doesn't always work instantly, and the economy keeps declining.

  • At some point, the economy is going to reach its bottom line, which is also know as a depression

  • when the gdp declines by at least 10 percent or the recession lasts for more than 2 years.

  • Sooner or later, the fed is going to say, "enough is enough," we are going to rescue

  • the economy at all costs.

  • First, they will lower interest rates to zero, so businesses can borrow money for free.

  • But what if that doesn't help, well the European central bank, dropped the interests to negative

  • (-0.5%), which means, the central bank will pay you to borrow that money,

  • But sometimes even that doesn't help, people are afraid to borrow because the economy looks

  • so bad that they don't seem to be able to pay it back.

  • In that case, the central banks will head to their bunker and use their nuclear option,

  • which is "quantitative easing," that's just a fancy word for printing money.

  • Businesses will take that money and hire people.

  • Investors would see that the economy is slowly recovering and will start investing.

  • The economy will return to the expansion stage, and the same cycle will repeat over and over.

  • Where are we NOW?

  • Since we know how the economy works now, where exactly are we in this graph, have we reached

  • the peak?

  • Or are we in a recession?

  • Or are we still during the expansion period?

  • Well, its extremely difficult to know for sure since we don't have all the facts in

  • front of us, and there are a lot of factors that are influencing the economy, but based

  • on what we know, we can try to predict.

  • One of the best indicators is the interest rates, as we have discussed earlier.

  • We can see that the fed has increased interest rates from 1 percent in 2005 to 5.2 percent

  • by 2008 since the economy was reaching its peak, but then everything collapsed so the

  • fed lowered the interest rates to 0.25 percent within a year to stimulate the growth and

  • for the next seven years didn't change since the economy was at its expansion period.

  • But then in 2015, it started to increase; by 2018, interest rates were at 2.5 percent.

  • Which means we might have reached the peak  In 2018, something different began to happen.

  • The fed lowered the interest rates (to 1.75%).

  • Other central banks, such as the European central bank, began lowering rates since 2014.

  • But they were already at a 0 parent, so they lowered them to -0.5 percent by 2019.

  • Other countries like China also decreased interest rates.

  • What does that mean?

  • The central banks knew that we have already reached the peak, and a recession was on a

  • horizon and tried to postpone it as long as possible by lowering interest rates.

  • Even the global GDP growth slowed down year

  • by year.

  • In 2017 it was 3.1 percent, but in 2019 even before the pandemic, it fell to 2.4 percent,

  • the lowest growth of the decade.

  • That didn't happen by accident.

  • In the last few years, a lot of things happened that slowed down the economy.

  • First we had a Brexit which scared off investors because the future of EU became unpredictable.

  • But you might think they shouldn't be worried because they can invest in the United States

  • or China?

  • Right?

  • But then suddenly the united states started a trade war with China and scared off more

  • investors and slowly drugging the economy into a recession.

  • - The final Knockout

  • Even with Brexit and the trade war, we still could somehow postpone the recession, but

  • then COVID-19 looked at our economy and said: "I am about to destroy this man's carrier

  • xD."

  • We live in a world where consumption drives the economy forward.

  • The more people earn, the more they spend, the faster the economic machine turns.

  • But right now, even if people are willing to spend, they simply can't, because restaurants,

  • malls, barbershops, airlines, offices all have to close down.

  • That's why almost every government in the

  • world is trying to put the money into people's hand, so that their spending doesn't fall

  • and the economy does not slide into a depression.

  • However, The problem is that there is just

  • so much money the government can raise or print, they can't keep distributing money

  • when the economy doesn't produce anything.

  • Millions of Americans have already applied

  • for unemployment benefits as of April 2020.

  • Its most likely the virus won't be gone for another few years, and it is very unlikely

  • that we will have a vaccine by the end of the year.

  • On top of that, since we are most likely already in a recession.

  • If we end up experiencing a second wave of this pandemic, then depression is inevitable.

  • That's one of the main reasons why the current

  • US president for example is trying to open the country as soon as possible since if the

  • country will slide to a depression under his watch, he will most likely lose the election

  • at the end of the year, whether that's good or bad, its up to you to decide.

  • By the time this video will be out, the country will probably be open.

  • - the change of the century

  • But not all businesses are going to suffer.

  • Online businesses like Zoom, for example, are growing tremendously, even amazon has

  • been growing.

  • But most businesses will be left with two options, they will earthier change their business

  • and adapt to the new realities by changing their business models, digitalizing their

  • products or services, or go bankrupt.

  • A lot of businesses will definitely won't make it, but as they say, every crisis presents

  • an opportunity.

  • Many new businesses will take their place.

  • This pandemic is literally pushing the world to go online completely.

  • It's difficult to say what will happen in the future since almost all predictions turn

  • out to be wrong, but base on what we know today, we are most likely going to depression,

  • the economy, together with the stock market will crush.

  • if you guys have enjoyed this video, make sure you give it a thumbs up and if you want

  • to see more similar videos, then hit that subscribe button.

  • thanks for watching and until next time.

In just a few weeks, 36 million Americans applied for unemployment, the unemployment

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The 2020 Stock Market Crash

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    Summer posted on 2020/10/08
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