If you examine the anatomy of a crisis, it seems like almost all of the big ones start with a completely false belief system.
“Two weeks to stop the spread”.
“Iraq has weapons of mass destruction.”
“We’ll be greeted as liberators.”
“The debt doesn’t matter because we owe it to ourselves.”
One of my favorites was the faulty premise that underpinned the 2008 Global Financial Crisis: “real estate only goes up in value.”
Nearly every “expert” believed it. The Fed. Major commercial banks. Wall Street analysts. Big hedge funds. Ratings agencies.
In retrospect it seems ludicrous. Of course real estate can lose value. It’s an asset. There’s risk. And that’s what happens after the crisis— people look back and wonder “how could anyone have believed something so stupid?”
Today, we’re in the midst of several other false belief systems. And one of those— as I wrote to you yesterday— is about the Federal Reserve.
In yesterday’s letter I explained that the Fed is THE most important central bank on the planet, because it is the primary custodian and issuer of the US dollar, i.e. the world’s primary reserve currency.
Yet at the same time, the Fed is hopelessly insolvent with over $800 BILLION in unrealized losses versus capital of just $44 billion. This makes the Fed the MOST insolvent bank that has ever existed in the history of the world.
Yet, so far, no one seems to care. The false premise is “It doesn’t matter that the most important institution to the global financial system is hopelessly insolvent. They can always just print more money…”
Future historians will not look kindly on this false logic. And people will wonder how anyone could have believed something so stupid.
This is the topic of today’s podcast.
We walk through the hilarious history of recent financial crises— how various entities failed, how the government responded… and how everyone keeps repeating the same mistakes over and over again.
It’s as if these banks are just begging to fail.
They’re literally now on the third iteration of repeating the same mistakes since 2008.
And you won’t want to miss the end, where we conclude with a great way to think about how to protect yourself from the fallout of this next brewing crisis.
We also talk about the way out— how high-speed economic growth could help the Fed (and the US government) out of its gargantuan financial problems. But in case this doesn’t happen, we walk through some very sensible strategies to deal with the potential fallout.
You can watch the video here, or listen to the audio here.
