1 Question for the 21st Century

Dear friends,

I am currently reading (listening) to Yuval Noah Harari’s book 21 Questions For The 21st Century. And that’s how I came up with the theme of the video below.

Already, after I shot the video, some amazing things happened: the Indian rupee, British pound, the Chinese yuan and the Euro plummeted in value. Why does this matter? It matters because the one question everyone has right now is can we withstand the current interest rate hikes, and is there an end in sight??

The counter-intuitive answer I have is a resounding YES. Yes, interest rates will come down. I am not saying it’s a linear projection. I am saying it’s a complex projection, but just like flying in a 737, the autopilot makes a whole lot of choices and sometimes no one even notices, not even the pilots.

Here is why interest rates will come down: if every currency is plummeting against the dollar, we can’t sustain American businesses with such an imbalance. America doesn’t want a super strong dollar. While certain foreign individuals might try to shelter assets in the US to preserve capital, ultimately, on a larger level, it makes it impossible for US companies to export goods. This perpetuates a trade deficit, and balancing deficits is a stated goal of our economic policy as well.

Again, inflation is, by definition, the weakening of the purchasing power of currency. If the currency is incredibly strong, it can’t also be weak.

Mind you, it’s not the average Joe who is afraid of inflation, really. You might think inflation has been brutal in stores, as prices went up drastically. However, now some of those prices have already come down a bit, like gas.

No, Its guys like bajillionaire Ken Griffin, who recently said,?“We should continue on the path that we’re on to ensure that we re-anchor inflation expectations,”?Griffin told CNBC at the?Delivering Alpha Investor Summit.

Even with?mortgage rates rising?to their highest level since 2002, Atlanta Fed President Raphael Bostic?said on Wednesday?that he believes another 75-basis-point rate hike is needed in November, arguing that there has been a “lack of progress” on reducing inflation.

Echoing Bostic’s comments, Griffin, whose?net worth?exceeds $29 billion, said that if inflation isn’t dealt with soon it could become entrenched.

Another point made by Mr. Harari in his 21 Questions book is that the 100 richest people in the world are as wealthy as the 4 billion poorest. So, it makes sense that Mr. Griffin, owner of the most expensive homes in each of the City of London, the State of Florida, New York City and Chicago, wants to keep the value of the currency from weakening. He really has something to lose, from his perspective.?

However, the Fed isn’t wholly owned by the investor class, though they are influential. Fears of strikes, recessions, crime and the breakdown of society matter, and for that reason, the Fed will have to blink, and bring the rates back down.?

Furthermore, inflation is not terrible for the US government, which has massive debt, and wants that debt to be relatively decreased. However, there are other factors, and the main factor is that if they keep raising rates, the cost of that debt goes up.

So, trust me, rates will come down, rates will come down, rates will come down. Sooner than people think…

Sincerely,

David Rosen