1 00:00:00,120 --> 00:00:02,640 Speaker 1: Do you think interest rates will be going up or 2 00:00:02,680 --> 00:00:06,160 Speaker 1: be going down in twenty twenty four. Well, billionaire investor 3 00:00:06,200 --> 00:00:09,960 Speaker 1: Bill Ackman expects the Fed will cut rates rapidly this year. 4 00:00:10,000 --> 00:00:13,200 Speaker 1: According to Forbes, the Fed will be slow to cut 5 00:00:13,240 --> 00:00:16,360 Speaker 1: interest rates this year. According to Bloomberg, the Federal Reserve 6 00:00:16,600 --> 00:00:19,799 Speaker 1: will lead the charge in cutting rates, with the rest 7 00:00:19,800 --> 00:00:22,480 Speaker 1: of the world following suit. Recent report from The Motley 8 00:00:22,560 --> 00:00:25,520 Speaker 1: Fool also agrees the Federal Reserve will be cutting rates 9 00:00:25,560 --> 00:00:28,200 Speaker 1: in twenty twenty four, while others are focusing on hints. 10 00:00:28,280 --> 00:00:31,520 Speaker 1: The Federal Reserve gave at its last meeting about three 11 00:00:31,520 --> 00:00:34,560 Speaker 1: potential rate cuts in twenty twenty four. Meanwhile, morning Star 12 00:00:34,640 --> 00:00:37,839 Speaker 1: predicts six interest rates cuts this year, and all across 13 00:00:37,880 --> 00:00:40,720 Speaker 1: the board, all we see is headlines of rate cuts 14 00:00:40,760 --> 00:00:45,559 Speaker 1: and more rate cuts. It seems like, according to most expectations, 15 00:00:45,600 --> 00:00:49,200 Speaker 1: the only question is how much will the Federal Reserve 16 00:00:49,240 --> 00:00:52,199 Speaker 1: cut rates by and how often? But what if I 17 00:00:52,280 --> 00:00:55,760 Speaker 1: were to tell you that this year the Federal Reserve 18 00:00:56,200 --> 00:00:59,760 Speaker 1: will cut interest rates, but the result of that will 19 00:00:59,800 --> 00:01:03,400 Speaker 1: be that interest rates will actually go higher. And what 20 00:01:03,480 --> 00:01:05,880 Speaker 1: if I were to tell you that not only is 21 00:01:05,959 --> 00:01:10,440 Speaker 1: this possible, but it has happened before and it happened 22 00:01:10,520 --> 00:01:15,039 Speaker 1: during the exact same situation we are facing today. First, 23 00:01:15,120 --> 00:01:17,840 Speaker 1: we have to take a look at the federal funds rate. 24 00:01:18,000 --> 00:01:21,160 Speaker 1: This is a chart of the federal funds rate, which, 25 00:01:21,200 --> 00:01:23,680 Speaker 1: as you can see, has been on the decline since 26 00:01:23,720 --> 00:01:26,480 Speaker 1: about nineteen eighty and most people are not aware of this. 27 00:01:26,600 --> 00:01:29,200 Speaker 1: But the federal funds rate is the only interest rate 28 00:01:29,200 --> 00:01:33,080 Speaker 1: that the Federal Reserve actually controls. So what is the 29 00:01:33,120 --> 00:01:36,000 Speaker 1: federal funds rate? The federal funds rate is the interest 30 00:01:36,120 --> 00:01:41,360 Speaker 1: rate at which depository institutions trade Federal funds with each 31 00:01:41,360 --> 00:01:46,440 Speaker 1: other overnight. When one depository institution has a surplus of 32 00:01:46,520 --> 00:01:50,360 Speaker 1: balances in its reserve account, it lends to other banks 33 00:01:50,480 --> 00:01:53,560 Speaker 1: that are in need of larger balances. In other words, 34 00:01:53,600 --> 00:01:57,360 Speaker 1: a bank with excess cash will lend to another bank 35 00:01:57,480 --> 00:02:01,440 Speaker 1: that needs that cash. The Federal Resons sets a tight 36 00:02:01,560 --> 00:02:05,120 Speaker 1: range at which this lending and borrowing of overnight cash 37 00:02:05,200 --> 00:02:08,720 Speaker 1: needs can happen. If the market rate starts to get 38 00:02:08,760 --> 00:02:12,240 Speaker 1: too high because too many banks need cash, the Federal 39 00:02:12,280 --> 00:02:16,760 Speaker 1: Reserve itself will enter the market and intervene by injecting 40 00:02:16,760 --> 00:02:19,720 Speaker 1: the cash necessary to cap the rates. If the rate 41 00:02:19,760 --> 00:02:23,040 Speaker 1: starts going too low, because nobody needs cash, and everybody 42 00:02:23,080 --> 00:02:26,400 Speaker 1: maybe needs the collateral. They will intervene yet again to 43 00:02:26,480 --> 00:02:28,640 Speaker 1: make sure the interest rate doesn't drop too low. What 44 00:02:28,720 --> 00:02:32,440 Speaker 1: you are left with is the effective Federal funds rate, 45 00:02:32,480 --> 00:02:36,160 Speaker 1: which is going to land somewhere in between their tight range. 46 00:02:36,240 --> 00:02:38,560 Speaker 1: And like I said before, this is the only interest 47 00:02:38,639 --> 00:02:41,080 Speaker 1: rate the Federal Reserve actually controls, and it is at 48 00:02:41,120 --> 00:02:43,480 Speaker 1: the shortest end of the yield curve. It is an 49 00:02:43,560 --> 00:02:47,040 Speaker 1: overnight interest rate. This is very different than the interest 50 00:02:47,120 --> 00:02:50,280 Speaker 1: rate on all of the forms of debt that individuals 51 00:02:50,400 --> 00:02:53,720 Speaker 1: and also most institutions actually care about. This is different 52 00:02:53,720 --> 00:02:56,960 Speaker 1: than the interest rate on US government debt treasuries, This 53 00:02:57,000 --> 00:03:00,560 Speaker 1: is different than the interest rate on mortgages, on audit loans, 54 00:03:00,600 --> 00:03:04,120 Speaker 1: on credit cards. It can and does have an influence 55 00:03:04,200 --> 00:03:06,880 Speaker 1: on those interest rates, but the Federal Reserve does not 56 00:03:07,080 --> 00:03:11,320 Speaker 1: outright control any of those interest rates, only the federal 57 00:03:11,360 --> 00:03:13,799 Speaker 1: funds rate. So who sets the interest rates on all 58 00:03:13,800 --> 00:03:15,600 Speaker 1: the forms of debt that people like you and I 59 00:03:15,760 --> 00:03:19,680 Speaker 1: actually care about. Well, it's actually primarily driven by free 60 00:03:19,680 --> 00:03:23,280 Speaker 1: market mechanics. Not entirely free. There's certainly a lot of 61 00:03:23,320 --> 00:03:26,280 Speaker 1: influence and a lot of corruption and a lot of manipulation, 62 00:03:26,440 --> 00:03:29,520 Speaker 1: But one of the primary driving forces is actually free 63 00:03:29,560 --> 00:03:32,400 Speaker 1: market mechanics, at least for now. You see, if I'm 64 00:03:32,560 --> 00:03:34,920 Speaker 1: the bank and you want to buy a car, so 65 00:03:35,000 --> 00:03:38,040 Speaker 1: you need to borrow thirty thousand dollars from me, and 66 00:03:38,200 --> 00:03:39,880 Speaker 1: you're going to pay me back over the course of 67 00:03:39,920 --> 00:03:42,560 Speaker 1: the next five years, I'm going to take a look 68 00:03:42,640 --> 00:03:45,560 Speaker 1: at what I think will give me a real return 69 00:03:45,760 --> 00:03:48,560 Speaker 1: on that money. Because if I just keep the cash 70 00:03:48,640 --> 00:03:51,240 Speaker 1: and I think inflation is going to run at three 71 00:03:51,280 --> 00:03:54,400 Speaker 1: percent over the next five years, then I'm losing three 72 00:03:54,440 --> 00:03:57,400 Speaker 1: percent on that cash every single year by not doing 73 00:03:57,440 --> 00:03:59,720 Speaker 1: anything with it. But if I give it to you 74 00:04:00,160 --> 00:04:02,640 Speaker 1: and give you a loan for let's say five percent, 75 00:04:02,960 --> 00:04:05,680 Speaker 1: now I'm gonna net the difference between the inflation rate 76 00:04:05,880 --> 00:04:08,120 Speaker 1: and the interest rate I'm giving to you, which is 77 00:04:08,160 --> 00:04:12,240 Speaker 1: going to be a two percent positive return in real terms. Now, 78 00:04:12,240 --> 00:04:15,240 Speaker 1: for everybody out there thinking about fractional reserve banking and 79 00:04:15,280 --> 00:04:17,480 Speaker 1: that they don't actually care about a real return because 80 00:04:17,480 --> 00:04:20,240 Speaker 1: they're getting some of a return on non existent money, 81 00:04:20,240 --> 00:04:21,640 Speaker 1: you're right. We're going to come back to that in 82 00:04:21,680 --> 00:04:24,080 Speaker 1: a moment. Now, for everybody thinking, hold up, they don't 83 00:04:24,160 --> 00:04:26,960 Speaker 1: actually have that cash, and so they don't actually care 84 00:04:27,000 --> 00:04:29,240 Speaker 1: about a real return on that money because they're not 85 00:04:29,320 --> 00:04:32,240 Speaker 1: holding it every dollar day loan. They're just lending into existence. 86 00:04:32,440 --> 00:04:34,760 Speaker 1: So they're okay taking an interest rate that's blow the 87 00:04:34,800 --> 00:04:38,039 Speaker 1: inflation rate. You're right about that, But let's explain what 88 00:04:38,080 --> 00:04:41,440 Speaker 1: that means when they're loaning money into existence. If you've 89 00:04:41,520 --> 00:04:44,680 Speaker 1: never heard of the concept of money being lent into 90 00:04:44,760 --> 00:04:47,960 Speaker 1: existence before the source or the origin of new dollars, 91 00:04:48,200 --> 00:04:50,120 Speaker 1: it can be a little bit difficult to grasp. When 92 00:04:50,120 --> 00:04:53,400 Speaker 1: I was in college, I was actually terrible with money. 93 00:04:53,640 --> 00:04:56,840 Speaker 1: Number One, I had a full ride scholarship. Number two, 94 00:04:57,000 --> 00:05:00,840 Speaker 1: I worked all through college. And number three, I graduated 95 00:05:00,920 --> 00:05:04,719 Speaker 1: with zero dollars in my bank account and thirty thousand 96 00:05:04,720 --> 00:05:08,000 Speaker 1: dollars debt because every single year I took out the 97 00:05:08,040 --> 00:05:11,000 Speaker 1: max amount I could in student loans even though I 98 00:05:11,000 --> 00:05:13,360 Speaker 1: didn't need it, and I spent it all at Chick 99 00:05:13,360 --> 00:05:16,159 Speaker 1: fil A and the gas station on energy drinks and 100 00:05:16,200 --> 00:05:19,360 Speaker 1: donuts and chips. Yes, I was extremely dumb, and yes 101 00:05:19,440 --> 00:05:22,400 Speaker 1: I got very fat in college, but that's not the 102 00:05:22,440 --> 00:05:24,279 Speaker 1: point of the story. The point of the story is 103 00:05:24,279 --> 00:05:26,040 Speaker 1: that a lot of the money I spent in college 104 00:05:26,040 --> 00:05:30,159 Speaker 1: came from student loans. For me to get that cash. 105 00:05:30,200 --> 00:05:33,040 Speaker 1: An arrangement was made between myself and the lender and 106 00:05:33,120 --> 00:05:37,919 Speaker 1: my university, and they credited or sent dollars over to 107 00:05:38,560 --> 00:05:42,080 Speaker 1: my bank account that didn't exist before. When that loan 108 00:05:42,240 --> 00:05:45,279 Speaker 1: was made, a deposit was made into my account, but 109 00:05:45,360 --> 00:05:48,720 Speaker 1: it was not transferred to my account from a previously 110 00:05:48,800 --> 00:05:53,320 Speaker 1: existing source. That loan was dollars being lent into existence. 111 00:05:53,520 --> 00:05:56,360 Speaker 1: And this is something that banks are allowed to do 112 00:05:56,560 --> 00:05:59,919 Speaker 1: in the United States because of how fractional reserve banking works. 113 00:06:00,120 --> 00:06:02,440 Speaker 1: When you make a loan, you're not transferring money from 114 00:06:02,600 --> 00:06:05,279 Speaker 1: your own account at the bank to somebody else's account. 115 00:06:05,400 --> 00:06:07,960 Speaker 1: You are lending those dollars into existence. I got those 116 00:06:07,960 --> 00:06:10,200 Speaker 1: dollars in my bank account, and I spent them on 117 00:06:10,360 --> 00:06:13,039 Speaker 1: junk food. I spent it on gas, I spent it 118 00:06:13,080 --> 00:06:15,560 Speaker 1: on energy drinks, and every time I made a purchase. 119 00:06:15,600 --> 00:06:19,159 Speaker 1: Those dollars were then transferred out into other accounts and 120 00:06:19,160 --> 00:06:22,480 Speaker 1: to my room and board payments, to the gas station, 121 00:06:22,680 --> 00:06:25,440 Speaker 1: to the fast foods bank account. So as a result 122 00:06:25,440 --> 00:06:28,320 Speaker 1: of that loan, there were now new dollars in circulation 123 00:06:28,480 --> 00:06:30,560 Speaker 1: in the economy. But it's not all fun and games. 124 00:06:30,640 --> 00:06:33,080 Speaker 1: Remember this is debt. It has to be paid back 125 00:06:33,240 --> 00:06:35,600 Speaker 1: and I had to go through a lot of struggle, 126 00:06:35,720 --> 00:06:38,840 Speaker 1: tons of hard work, and a really great system in 127 00:06:38,960 --> 00:06:40,719 Speaker 1: order to get out of debt, which my wife and 128 00:06:40,720 --> 00:06:42,920 Speaker 1: I were able to do within one year of graduating. 129 00:06:43,000 --> 00:06:45,320 Speaker 1: Is actually one of the things that I teach members 130 00:06:45,320 --> 00:06:48,279 Speaker 1: of Harecy Financial University how to do, so that you 131 00:06:48,360 --> 00:06:51,640 Speaker 1: can stop paying interest on massive amounts of debt as 132 00:06:51,680 --> 00:06:54,400 Speaker 1: quickly as possible and start actually getting ahead on your 133 00:06:54,400 --> 00:06:57,400 Speaker 1: financial journey, investing and making money for yourself instead of 134 00:06:57,400 --> 00:06:59,559 Speaker 1: flushing money down the toilet. But if you've ever paid 135 00:06:59,600 --> 00:07:02,320 Speaker 1: off debt before, one thing you'll notice is you're taking 136 00:07:02,440 --> 00:07:04,920 Speaker 1: dollars that were in circulation because you get them through 137 00:07:04,960 --> 00:07:07,279 Speaker 1: a paycheck or through a sale or some money that 138 00:07:07,320 --> 00:07:10,160 Speaker 1: you earn, and you use that to pay off a loan. Well, 139 00:07:10,160 --> 00:07:13,520 Speaker 1: guess what. That loan then just ceases to exist. It 140 00:07:13,560 --> 00:07:16,040 Speaker 1: gets paid off, it goes away. That money doesn't sit 141 00:07:16,080 --> 00:07:18,440 Speaker 1: in the lender's own bank account. That loan was an 142 00:07:18,480 --> 00:07:20,560 Speaker 1: asset to the bank, and now that that loan is 143 00:07:20,560 --> 00:07:23,560 Speaker 1: paid off, the asset disappears. It's gone, and those dollars 144 00:07:23,600 --> 00:07:26,480 Speaker 1: that were floating around in circulation are no longer in 145 00:07:26,520 --> 00:07:29,360 Speaker 1: circulation because you got them as income and use them 146 00:07:29,360 --> 00:07:31,400 Speaker 1: to pay off debt. So just as money is loaned 147 00:07:31,440 --> 00:07:34,560 Speaker 1: into existence, when debt is paid down, those dollars cease 148 00:07:34,680 --> 00:07:37,640 Speaker 1: to exist. Okay, it might seem like we bounced around 149 00:07:37,680 --> 00:07:39,920 Speaker 1: a ton. Number One, we talked about the Federal Reserve 150 00:07:40,000 --> 00:07:41,560 Speaker 1: is going to lower interest rates, but that's going to 151 00:07:41,600 --> 00:07:43,680 Speaker 1: cause interest rates to go up. Number two, we talked 152 00:07:43,680 --> 00:07:46,040 Speaker 1: about what the Federal funds rate is, and how the 153 00:07:46,040 --> 00:07:50,280 Speaker 1: Federal funds rate is the lending rate between banks overnight 154 00:07:50,320 --> 00:07:53,119 Speaker 1: and it does not directly control any other interest rates 155 00:07:53,120 --> 00:07:56,240 Speaker 1: that is set by market forces. Those market forces and 156 00:07:56,440 --> 00:08:00,080 Speaker 1: expectations about inflation are what push up and down on 157 00:08:00,520 --> 00:08:02,960 Speaker 1: interest rates for things that you and I care about. 158 00:08:03,000 --> 00:08:06,400 Speaker 1: And not only that, that debt that we borrow and 159 00:08:06,520 --> 00:08:10,360 Speaker 1: lend and payoff causes the money supply to expand and contract. 160 00:08:10,400 --> 00:08:13,560 Speaker 1: So let's put this all together now to us understand 161 00:08:13,640 --> 00:08:16,560 Speaker 1: how this is going to cause interest rates to go 162 00:08:16,720 --> 00:08:19,000 Speaker 1: up even if the Fed tries to cut that. When 163 00:08:19,040 --> 00:08:23,880 Speaker 1: the money supply expands and contracts, it's fairly commonly understood 164 00:08:23,960 --> 00:08:27,200 Speaker 1: by at least viewers of this channel now that that 165 00:08:27,440 --> 00:08:31,320 Speaker 1: has an impact on prices. All else being equal, if 166 00:08:31,360 --> 00:08:33,880 Speaker 1: you increase the money supply, a lot that's going to 167 00:08:33,880 --> 00:08:36,400 Speaker 1: push prices up. All else being equal, if you decrease 168 00:08:36,440 --> 00:08:38,840 Speaker 1: the money supply a lot, that's going to push prices down. 169 00:08:38,880 --> 00:08:40,880 Speaker 1: Going back to the federal funds rate, we can see 170 00:08:40,880 --> 00:08:43,400 Speaker 1: that ever since the eighties, it's been trending down. This 171 00:08:43,520 --> 00:08:47,959 Speaker 1: is the overnight rate, which has most influence on short 172 00:08:48,080 --> 00:08:50,760 Speaker 1: term debt. This is a chart of the one year 173 00:08:50,920 --> 00:08:53,840 Speaker 1: government bond, and you can see the interest strate on 174 00:08:53,960 --> 00:08:57,000 Speaker 1: this looks very similar to the federal funds rate. Ever 175 00:08:57,040 --> 00:09:00,120 Speaker 1: since nineteen eighty it's been trending lower, which means that 176 00:09:00,240 --> 00:09:03,480 Speaker 1: when the federal funds rate goes down, the US government 177 00:09:03,679 --> 00:09:07,240 Speaker 1: is able to directly borrow at lower rates as long 178 00:09:07,280 --> 00:09:09,920 Speaker 1: as they're borrowing for a very short term time period. 179 00:09:10,040 --> 00:09:13,640 Speaker 1: This is done through a specific type of US government 180 00:09:13,800 --> 00:09:17,640 Speaker 1: treasury bond called a Treasury bill. As of January of 181 00:09:17,679 --> 00:09:20,800 Speaker 1: twenty twenty four, the interest rates are in between five 182 00:09:20,880 --> 00:09:23,520 Speaker 1: and five and a half percent on these tea bills. 183 00:09:23,559 --> 00:09:26,320 Speaker 1: If the federal funds rate goes down to let's say 184 00:09:26,440 --> 00:09:30,000 Speaker 1: three percent, then the t bill rates will likely be 185 00:09:30,080 --> 00:09:33,360 Speaker 1: a lot closer to three percent than the five percent 186 00:09:33,400 --> 00:09:36,320 Speaker 1: that they're at right now. The US government already likes 187 00:09:36,400 --> 00:09:39,400 Speaker 1: borrowing at the very very short end of the curve. 188 00:09:39,440 --> 00:09:41,880 Speaker 1: They love using tea bills to make up a lot 189 00:09:41,920 --> 00:09:45,720 Speaker 1: of their borrowing, and if that borrowing becomes even cheaper, 190 00:09:45,920 --> 00:09:48,360 Speaker 1: they're going to like that even more. Right now, the 191 00:09:48,559 --> 00:09:52,880 Speaker 1: interest on the national debt is a huge concern because 192 00:09:52,880 --> 00:09:56,360 Speaker 1: it's becoming such a large line item on the overall budget. 193 00:09:56,360 --> 00:09:58,800 Speaker 1: They're spending over a trillion dollars a year just on 194 00:09:58,840 --> 00:10:02,079 Speaker 1: the interest on the NASH debt, which means if they 195 00:10:02,120 --> 00:10:05,440 Speaker 1: are able to borrow at lower rates, this helps with 196 00:10:05,480 --> 00:10:10,360 Speaker 1: that and increases their ability to spend and borrow without 197 00:10:10,360 --> 00:10:13,000 Speaker 1: having to worry about the consequences until later. Are you 198 00:10:13,000 --> 00:10:15,520 Speaker 1: seeing how this starts to play out now? Step number one, 199 00:10:15,679 --> 00:10:19,600 Speaker 1: The Federal Reserve cuts interest rates on the federal funds 200 00:10:19,679 --> 00:10:21,640 Speaker 1: rate that is the shortest end of the curve, the 201 00:10:21,800 --> 00:10:25,120 Speaker 1: overnight rate. As a result, it also pushes down interest 202 00:10:25,200 --> 00:10:27,640 Speaker 1: rates at the short end of the curve, like these 203 00:10:27,679 --> 00:10:30,600 Speaker 1: T bill rates. This gives the US government the ability 204 00:10:30,640 --> 00:10:33,200 Speaker 1: to borrow much more and spend more freely. We know 205 00:10:33,240 --> 00:10:36,480 Speaker 1: that when debt is created, when money is borrowed, that 206 00:10:36,679 --> 00:10:39,960 Speaker 1: is dollars being loaned into existence. So as a result 207 00:10:40,040 --> 00:10:43,079 Speaker 1: of the federal funds rate going down, the government borrows 208 00:10:43,080 --> 00:10:46,520 Speaker 1: more and spends more. That increases the money supply. And 209 00:10:46,520 --> 00:10:50,160 Speaker 1: what happens when the money supply increases inflation prices go up. 210 00:10:50,200 --> 00:10:53,559 Speaker 1: And if inflation starts to increase again, do you think 211 00:10:53,800 --> 00:10:56,480 Speaker 1: your lender is going to give you a three percent 212 00:10:56,559 --> 00:10:59,240 Speaker 1: mortgage or do you think it's more likely mortgage rates 213 00:10:59,240 --> 00:11:02,200 Speaker 1: stay at six or seven percent If inflation starts to 214 00:11:02,200 --> 00:11:04,000 Speaker 1: pick up again, do you think you're going to get 215 00:11:04,040 --> 00:11:07,080 Speaker 1: an auto loan for three or four percent or do 216 00:11:07,120 --> 00:11:09,320 Speaker 1: you think it's likely they stay around nine or ten percent. 217 00:11:09,400 --> 00:11:11,080 Speaker 1: Do you think your credit card rate is going to 218 00:11:11,080 --> 00:11:13,199 Speaker 1: go back down to fourteen percent or do you think 219 00:11:13,200 --> 00:11:15,319 Speaker 1: it's going to stay up at twenty five percent? If 220 00:11:15,320 --> 00:11:18,080 Speaker 1: inflation starts to pick up again, it is more likely 221 00:11:18,160 --> 00:11:20,800 Speaker 1: than not that all of the interest rates for the 222 00:11:20,800 --> 00:11:24,600 Speaker 1: type of debt that individuals and institutions care about go up. 223 00:11:24,679 --> 00:11:28,840 Speaker 1: The only person experiencing cheaper borrowing will be the US government. 224 00:11:29,160 --> 00:11:31,720 Speaker 1: Uncle Sam, and like I promised in the beginning of 225 00:11:31,720 --> 00:11:34,120 Speaker 1: this video, we are going to look at a time 226 00:11:34,200 --> 00:11:38,199 Speaker 1: that this has actually happened before. Because we understand the mechanics, 227 00:11:38,400 --> 00:11:41,800 Speaker 1: it's possible the Fed lowers borrowing rates for the government, 228 00:11:41,840 --> 00:11:44,160 Speaker 1: so they borrow more, they spend more. That cause inflation 229 00:11:44,200 --> 00:11:46,920 Speaker 1: to go up, so borrowing rates for everybody else actually 230 00:11:46,920 --> 00:11:49,160 Speaker 1: go up. This is a chart with a ton of 231 00:11:49,200 --> 00:11:51,720 Speaker 1: lines on it, so please bear with me. I'll explain 232 00:11:51,760 --> 00:11:54,840 Speaker 1: what you're looking at here. The blue chart line is 233 00:11:54,920 --> 00:11:57,200 Speaker 1: the Federal funds rate. If you look at the dates 234 00:11:57,240 --> 00:12:00,679 Speaker 1: at the very bottom, this goes from nineteen sixty seven 235 00:12:00,720 --> 00:12:03,720 Speaker 1: through nineteen eighty two. This was the very last time 236 00:12:03,760 --> 00:12:07,040 Speaker 1: we had a long term cycle of prices and interest 237 00:12:07,120 --> 00:12:09,600 Speaker 1: rates going up. I've talked about this long term cycle 238 00:12:09,640 --> 00:12:13,240 Speaker 1: before that lasted about forty years, peaked in nineteen eighty. 239 00:12:13,280 --> 00:12:15,920 Speaker 1: The next forty years was from nineteen eighty to twenty twenty, 240 00:12:16,080 --> 00:12:19,319 Speaker 1: and that was inflation and interest rates dropping. I believe 241 00:12:19,320 --> 00:12:22,880 Speaker 1: we've entered into the next phase of this long term 242 00:12:22,920 --> 00:12:25,679 Speaker 1: debt cycle that will be similar to nineteen forty through 243 00:12:25,720 --> 00:12:28,959 Speaker 1: nineteen eighty, with inflation and interest rates both going up again. 244 00:12:29,000 --> 00:12:31,360 Speaker 1: But right now we're just focusing on nineteen sixty seven 245 00:12:31,400 --> 00:12:34,439 Speaker 1: through nineteen eighty two. The blue chart line is the 246 00:12:34,480 --> 00:12:36,720 Speaker 1: Federal funds rate. This is the interest rate that the 247 00:12:36,720 --> 00:12:40,520 Speaker 1: Federal Reserve directly controls The orange chart line that you're 248 00:12:40,559 --> 00:12:43,520 Speaker 1: seeing here overlaid is the interest rate on the United 249 00:12:43,600 --> 00:12:46,880 Speaker 1: States ten year treasury. So when the government borrows a 250 00:12:46,960 --> 00:12:48,800 Speaker 1: ten year loan, meaning they have to pay that loan 251 00:12:48,840 --> 00:12:51,280 Speaker 1: back in ten years, that's called a ten year treasury 252 00:12:51,320 --> 00:12:53,960 Speaker 1: and this orange line shows the interest rate that the 253 00:12:53,960 --> 00:12:57,439 Speaker 1: government was paying on those new ten year bonds during 254 00:12:57,480 --> 00:12:59,880 Speaker 1: that same time period. The first time period I would 255 00:12:59,920 --> 00:13:02,800 Speaker 1: like to look at is August of nineteen sixty nine 256 00:13:02,880 --> 00:13:06,280 Speaker 1: through September of nineteen seventy During this period of time, 257 00:13:06,360 --> 00:13:09,079 Speaker 1: you'll see the blue chart line, which is the federal 258 00:13:09,120 --> 00:13:13,160 Speaker 1: funds rate, dropped significantly, while at the same time, the 259 00:13:13,200 --> 00:13:16,160 Speaker 1: orange line, the interest rate on the ten year actually 260 00:13:16,200 --> 00:13:19,760 Speaker 1: went up. We can also see from September of nineteen 261 00:13:19,880 --> 00:13:24,120 Speaker 1: seventy three through February of nineteen seventy four, the blue line, 262 00:13:24,120 --> 00:13:27,800 Speaker 1: which is the federal funds rate, which the Fed actually controls, dropped. 263 00:13:27,840 --> 00:13:30,959 Speaker 1: They dropped interest rates, yet at the same time the 264 00:13:31,000 --> 00:13:34,120 Speaker 1: ten year actually increased in its interest rate. And for 265 00:13:34,160 --> 00:13:36,040 Speaker 1: the last period of time here we have July of 266 00:13:36,120 --> 00:13:40,240 Speaker 1: nineteen seventy four through May of nineteen seventy five. Again, 267 00:13:40,400 --> 00:13:44,160 Speaker 1: the Federal Reserve drastically cut rates as shown by the 268 00:13:44,160 --> 00:13:46,400 Speaker 1: blue line going down. That's a federal funds rate, while 269 00:13:46,440 --> 00:13:48,440 Speaker 1: the orange line, which is the interest rate on the 270 00:13:48,559 --> 00:13:52,880 Speaker 1: tenure treasury again actually rose. Historically, the ten year is 271 00:13:53,240 --> 00:13:56,480 Speaker 1: much more closely tied to things like mortgages and car loans, 272 00:13:56,679 --> 00:13:59,160 Speaker 1: the things that people care about than the federal funds 273 00:13:59,200 --> 00:14:03,280 Speaker 1: rate actually is. This was three periods of time during 274 00:14:03,360 --> 00:14:06,680 Speaker 1: the early nineteen seventies where the Fed cut interest rates 275 00:14:06,720 --> 00:14:10,400 Speaker 1: and the result was a reigniting of inflation that caused 276 00:14:10,600 --> 00:14:13,199 Speaker 1: interest rates like the ten uere to actually go up. 277 00:14:13,280 --> 00:14:14,880 Speaker 1: We are in a time period right now that is 278 00:14:15,000 --> 00:14:18,760 Speaker 1: very similar to the seventies where everybody thinks inflation is dying, 279 00:14:18,840 --> 00:14:21,760 Speaker 1: inflation is done. We had a little burst of inflation 280 00:14:21,920 --> 00:14:24,480 Speaker 1: from the money printing that happened in twenty twenty and 281 00:14:24,560 --> 00:14:27,880 Speaker 1: that's all over now, just like they thought during the seventies, 282 00:14:28,080 --> 00:14:31,160 Speaker 1: which caused them to cut rates that reignited inflation and 283 00:14:31,240 --> 00:14:34,040 Speaker 1: result in them having to raise rates much higher later 284 00:14:34,080 --> 00:14:36,880 Speaker 1: on very similar time period to what we're facing today. 285 00:14:37,240 --> 00:14:40,840 Speaker 1: Long term debt cycle has turned the corner into a 286 00:14:40,920 --> 00:14:43,280 Speaker 1: new phase, and it is more likely than not that 287 00:14:43,400 --> 00:14:47,480 Speaker 1: during twenty twenty four, when the federal reserve cuts interest 288 00:14:47,560 --> 00:14:51,400 Speaker 1: rates that will spark a reignition of inflation because the 289 00:14:51,440 --> 00:14:53,840 Speaker 1: government will be able to borrow and spend so much more, 290 00:14:53,880 --> 00:14:55,560 Speaker 1: And then the rates on all the other debt that 291 00:14:55,600 --> 00:14:58,240 Speaker 1: you and I care about will actually go up as 292 00:14:58,240 --> 00:15:01,960 Speaker 1: a result. And if your interest in creating a portfolio 293 00:15:02,000 --> 00:15:05,000 Speaker 1: that is protected from crazy moves like this in interest 294 00:15:05,080 --> 00:15:07,360 Speaker 1: rates and the results that this will have on other 295 00:15:07,400 --> 00:15:10,320 Speaker 1: asset classes like the stock market and real estate, join 296 00:15:10,440 --> 00:15:13,160 Speaker 1: hundreds of other members of Haresy Financial University that are 297 00:15:13,240 --> 00:15:16,280 Speaker 1: learning to do exactly this, because in the coming financial storms, 298 00:15:16,320 --> 00:15:18,800 Speaker 1: there's going to be two types of people. The first 299 00:15:18,840 --> 00:15:21,400 Speaker 1: group of people are going to lose a ton of 300 00:15:21,440 --> 00:15:24,920 Speaker 1: money in the volatility, in the crashes, in the buying high, 301 00:15:24,960 --> 00:15:26,800 Speaker 1: and in the selling love. The other group of people 302 00:15:26,880 --> 00:15:30,080 Speaker 1: is going to be sophisticated investors who are prepared, who 303 00:15:30,080 --> 00:15:32,520 Speaker 1: are hedged, and who are ready to take advantage of 304 00:15:32,520 --> 00:15:34,880 Speaker 1: the opportunities as they come. And nobody wants to be 305 00:15:34,960 --> 00:15:37,960 Speaker 1: in that first group, but most people will be, so 306 00:15:38,160 --> 00:15:39,760 Speaker 1: don't be part of the crowd. Sign up for Haresy 307 00:15:39,760 --> 00:15:42,440 Speaker 1: Financial University linked in the description below. As always, thank 308 00:15:42,440 --> 00:15:43,960 Speaker 1: you so much, watching have a great day.