On Wednesday, the U.S. Department of Labor released data on the December 2021 Consumer Price Index (CPI), which rose 7 percent year-on-year in December, the biggest increase since 1982.
For the United States CPI increase is relatively large, as early as the market expected, but the December CPI rose to 7%, or a bit unexpected, before many people predicted that the United States CPI in December should be within 6.9%, but did not expect to soar to 7%.
For such a high inflation rate, it is estimated that it is also unexpected in the United States, it is estimated that when they issued so many dollars, they did not expect to cause such high inflation.
At present, the U.S. economy has begun to double, employment has begun to gradually recover, it is expected that in 2021, the US GDP growth rate is expected to reach about 5.5%, in this context, the Fed has a high probability of raising interest rates in advance.
Fed Chairman Jerome Powell, for example, told Senate members on Tuesday that he expected rate hikes this year, while bond purchases will end in March and will begin reducing the size of the balance sheet later this year.
Powell also mentioned that these measures may be needed to control inflation at a time when the economy has recovered sharply from the shock of the pandemic.
And according to the Fed's practice and the current US 7% CPI, once the interest rate is raised, it is possible to raise interest rates continuously, and the INTEREST rate in the United States may increase significantly in the short term, and the market liquidity will tighten rapidly.
Once liquidity tightens, it is likely to trigger a stock market "crisis".
Because the current US stock market is indeed a bit outrageous, from the Beginning of the Fed in 2020 to the present, the US stock market has risen sharply.
For example, at the end of March 2020, when the United States began to release water, the S&P 500 index was only about 2600 points, and as of now, the S&P 500 index has risen to about 4800 points, an increase of more than 84%.
In addition, the Dow has also risen from around 22,000 points to the current 36,500 points, an increase of more than 65%.
Especially for those technology stocks, the gains were even greater, such as Apple's market value increase of more than 2 times, and Alphabet's increase of more than 145%.
The rise of these stocks is not because their value is really worth the increase, the main reason is that after the increase in liquidity, there is a lot of capital into the stock market, all the way to push these stocks, so the potential bubble is very large
Once the Fed raises interest rates in the future, market liquidity tightens, stock market funds will be reduced, then a lot of funds will flow out of the stock market, the stock market decline is inevitable, once there are some black swan events, it may bring "crisis".
In this regard, some time ago Musk predicted that an economic crisis in 2022 may occur, no later than 2023.
He mentioned that "predicting the macro economy is challenging, and my intuition is that the Great Recession will be around the spring or summer of 2022, but no later than 2023".
Musk's prediction is actually not empty, but there is a certain omen, whether from the historical data, or from the law of the financial crisis, the current US stock market is an undercurrent.
For the 7% CPI increase, many people may not have any concept, we compare the historical CPI of the United States to know how high this data is.
In the past 40 years, no year in the United States has reached a CPI of 7%, the closest to 7% is 6.14% in 1982, and the CPI really reached more than 7% before 1981.
From 1983 to 2020, the U.S. CPI was below 5.5 percent for most years, with the highest 1990 gaining just 5.4 percent.
In the 28 years from 1992 to 2020, the CIP in the United States was all below 4%, and the CPI rose by 3.8% in 2008, resulting in a subprime mortgage crisis in the United States in 2008, which triggered the global financial crisis.
Comparing the current situation of the US economy and the performance of CPI with 2008, it is still that familiar taste, familiar recipe.
It's just that the subprime mortgage crisis of 2008 was caused by the property market, and this crisis is likely to be caused by the stock market.
Before the subprime mortgage crisis in 2008, the US property market was also thriving, and one of the fundamental reasons why the US property market was very hot was that the monetary environment in the United States at that time was also very loose, which had to start from the 911 incident in 2001.
On September 11, 2001, the World Trade Center and the Pentagon were attacked by terrorists, and the entire United States was immersed in grief.
After the 9/11 terrorist attacks, the American people's willingness to consume has decreased, economic growth has also been greatly affected, in order to achieve economic recovery, the most direct and simplest way is to cut interest rates, so from September 17, 2001 to 2003 the Federal Reserve made six consecutive interest rate cuts:
In 2001
50 basis points down to 3.00 on September 17;
50 basis points down to 2.50 on October 2;
50 basis points down to 2.00 on November 6;
Down 25 basis points to 1.75 on December 12;
50 basis points down to 1.25 on 6 January 2002;
On June 25, 2003, it was lowered by 25 basis points to 1.00.
In addition, before 9/11, the United States had cut interest rates 7 times in a row, and the federal target benchmark interest rate fell from 6.00 to 3.00, which is equivalent to more than two years, and the US interest rate fell directly from 6.0 to 1.00.
In the context of declining interest rates, the market liquidity is more and more, the bank's loan threshold is getting higher and higher, as a result, some unqualified cats and dogs can also apply for loans from Freddie Mae Fannie Mae through real estate agents, and then Freddie Mae, Fannie Mae and then package these loans to some financial institutions on Wall Street, Huajie Financial Institutions and then introduce some guarantee institutions and insurance companies, constantly making the leverage bigger, and the risk is getting bigger and bigger.
The reason why everyone dared to play like this was because in the context of low interest rates at that time, the US economic growth rate was relatively considerable, employment was relatively sufficient, and the inflation rate was relatively low, so everyone did not feel any risk.
But in the context of low interest rates, inflation in the United States has also been rising, from 2002 to 2005, the CPI of the United States was 1.59%, 2.27%, 2.68%, and 3.39%, respectively.
In the context of increasing deflationary pressure, the United States began to sacrifice the stick of interest rate hikes, and it was several times in a row.
In 2004
June 30 Raised 25 basis points to 1.25;
Raised 25 basis points to 1.50 on August 10;
Raised 25 basis points to 1.75 on September 21;
Raised 25 basis points to 2.00 on November 10;
Raised 25 basis points to 2.25 on December 14;
In 2005
Raised 25 basis points to 2.50 on Feb. 2;
25 basis points higher to 2.75 on March 22;
Raised 25 basis points to 3.00 on May 3;
Raised 25 basis points to 3.25 on June 30;
Raised 25 basis points to 3.50 on August 9;
Raised 25 basis points to 3.75 on September 20;
Raised 25 basis points to 4.00 on Nov. 1;
December 13 Raised 25 basis points to 4.25;
In 2006
Raised 25 basis points to 4.50 on Jan. 31;
25 basis points to 4.75 on March 28;
Raised 25 basis points to 5.00 on May 10;
Raised 25 basis points to 5.25 on June 29;
By June 2006, the U.S. benchmark interest rate had risen from nearly zero to 5.25 percent, and the rapid rise in interest rates made it increasingly difficult for lenders to pay their debts, resulting in a large number of subprime loan defaults and a plunge in house prices.
Affected by this, the credit rating of MBS bonds has also been continuously downgraded, and in 2007, the subprime mortgage crisis broke out, MBS bonds were sold wildly, and a large number of financial institutions and investment banks collapsed, including lehman brothers as we know it, which subsequently triggered a global financial crisis, and the impact of this crisis has not been completely eliminated.
Referring to the background of the 2008 financial crisis, once the Fed raises interest rates in the future, the US stock market may repeat the same mistakes.
As Bridgewater, the world's largest hedge fund, warns, the current U.S. stock market has been the most liquidity-sensitive period over the past 20-odd years, and bubbles are most likely to burst as a result of tighter monetary policy when stocks are unusually sensitive to liquidity conditions and less sensitive to short-term economic growth.
Once the stock market bubble bursts, the first to be hit will be some technology stocks, as in 2000, as to whether the US stock market will eventually be avalanche, we will wait and see.