{"id":60718,"date":"2021-11-29T15:20:52","date_gmt":"2021-11-29T20:20:52","guid":{"rendered":"https:\/\/olduvai.ca\/?p=60718"},"modified":"2021-11-29T15:20:52","modified_gmt":"2021-11-29T20:20:52","slug":"could-the-fed-trigger-the-next-financial-crisis","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=60718","title":{"rendered":"Could The Fed Trigger The Next \u201cFinancial Crisis\u201d"},"content":{"rendered":"

Could The Fed Trigger The Next \u201cFinancial Crisis\u201d<\/a><\/h3>\n
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Could the Fed trigger the next\u00a0\u201cfinancial crisis<\/em>\u201d as they begin to hike interest rates? Such is certainly a question worth asking as we look back at the Fed\u2019s history of previous monetary actions. Such was a topic I discussed in\u00a0\u201cInvestors Push Risk Bets.\u201d<\/a><\/em><\/strong>\u00a0To wit:<\/p>\n

\u201cW<\/strong>ith the entirety of the financial ecosystem more heavily levered than ever, the\u00a0\u201cinstability of stability\u201d\u00a0<\/strong>is the most significant risk.<\/em><\/p>\n

The\u00a0\u2018stability\/instability paradox\u2019<\/strong>\u00a0assumes all players are rational and implies avoidance of destruction.\u00a0In other words, all players will act rationally, and no one will push\u00a0\u2018the big red button.\u2019<\/strong><\/em><\/p>\n

The Fed is highly dependent on this assumption. After more than 12-years of the most unprecedented monetary policy program in U.S. history, they are attempting to navigate\u00a0the risks built up in the system.<\/strong><\/a>\u201c<\/em><\/p><\/blockquote>\n

The problem, as shown below, is that throughout history, when the Fed begins to hike interest rates someone inevitability pushes the\u00a0\u201cbig red button.\u201d<\/em><\/p>\n

\"Next<\/a><\/figure>\n

The behavioral biases of individuals remain the\u00a0most serious risk facing the Fed.\u00a0<\/strong>While they may hope that individuals will act rationally as they hike rates and tighten monetary policy, investors tend not to act that way.<\/p>\n

Importantly, each previous crisis in history was primarily a function of extreme excesses in one area of the market or economy.<\/p>\n

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  • In the early 70\u2019s it was the\u00a0\u201cNifty Fifty\u201d stocks,<\/em><\/li>\n
  • Then Mexican and Argentine bonds a few years after that<\/em><\/li>\n
  • \u201cPortfolio Insurance\u201d was the \u201cthing\u201d in the mid -80\u2019s<\/em><\/li>\n
  • Dot.com anything was a great investment in 1999<\/em><\/li>\n
  • Real estate has been a boom\/bust cycle roughly every other decade, but 2007 was a doozy<\/em><\/li>\n<\/ul>\n

    What about currently?<\/p>\n

    A Bubble In \u201cEverything\u201d<\/strong><\/p>\n

    No matter what corner of the market or economy you look there are excesses.<\/p>\n

    \u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/article>\n","protected":false},"excerpt":{"rendered":"

    Could The Fed Trigger The Next \u201cFinancial Crisis\u201d Could the Fed trigger the next\u00a0\u201cfinancial crisis\u201d as they begin to hike interest rates? Such is certainly a question worth asking as we look back at the Fed\u2019s history of previous monetary actions. Such was a topic I discussed in\u00a0\u201cInvestors Push Risk Bets.\u201d\u00a0To wit: \u201cWith the entirety […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[17853,303,312,8511,15470,3650],"class_list":["post-60718","post","type-post","status-publish","format-standard","hentry","category-economics","tag-everything-bubble","tag-fed","tag-financial-crisis","tag-lance-roberts","tag-real-investment-advice","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/60718","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=60718"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/60718\/revisions"}],"predecessor-version":[{"id":60719,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/60718\/revisions\/60719"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=60718"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=60718"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=60718"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}