The Last Time This Happened… US Economy Collapsed

Last time something like this happened, the stock market crashed by almost 90%. First, the stock market crashed so much that wall street called it the black thursday. Then, after the weekends, on monday, the stock market kept collapsing, so the wall street called it black monday, then black monday turned into black tuesday, and then black tuesday turned into the great depression of 1929. This is the only time in the US history that the stock market has crashed by over 90%. In fact, this was an artificially man-made crisis. The 1929 crisis should not have happened in the first place if it wasn't for the government. And it seems like we are repeating the exact same mistakes right now, and we might end up with the exact same crisis, as if we haven't learned anything from history. If the stock market will crash as much as it did back in 1929, the stock market is going to freak out. Because the biggest market crash that we have seen since then was the dot com crash of 2001, but even back in the days, it was about 67 to 70 percent. And the reason behind it was very simple that the stock market drew dramatically because it was overleveraged. People started borrowing money to invest in the stock market. And back in the days, the market was growing so fast that people could simply pay 10 to 20 percent and borrow the other 90 to 80 percent and buy that stock. And that led to the fact that the stock market turned into one giant bubble. Whenever you have bubbles, bubbles turn to fall down. However, the nature of the bubbles is that as the price keeps rising, more people keep buying. If you look at this graph and you see that everybody is buying stocks and everybody is making money, it is very difficult to sit down and just watch how everybody is getting richer and that's not you. So you start buying stocks as well. If you don't have the money, you start borrowing that money if you can afford that. Remember the crypto bubbles that we had in the past? When that turned into a bubble, people were freaking out. They were using their credit cards to buy bitcoin and other cryptos to the point where it actually turned into a bubble. But it wasn't a bitcoin bubble, it was the entire stock market bubble. More buying led to more margin loans. Margin loans led to higher prices, and higher prices literally created a much bigger bubble. In theory, it's supposed to be a very simple financial crisis that any country would go. The US history or the history of the world is filled with bubbles and financial crises. They will happen whether you like it or not. As long as there is an investing opportunity, there is going to be a bubble because people will keep buying, there is less information, and a lot of people are really bad at investing, and it will turn into a bubble. The nature of bubbles is that they burst very normally and then the market is going to correct because the crash allows very bad businesses to get out of the market. Every time there is a crypto crash, bitcoin doesn't disappear, but there are a lot of crypto companies that will go out of business because they were very weak businesses to begin with. They were very shallow businesses. They did not have a good business model, so they supposed to go bankrupt because their prices were overvalued because they were hyped. And then the market will start growing as well. So 1929 depression should have turned into a crisis that would have lasted a year or two at best. However, the government suddenly decides that we are going to protect bad businesses in the economy by raising the tariffs to 25 percent. So the average tariff rate was raised beginning from 1929 to almost 25 percent at their peak. So prices artificially were made more expensive in the United States to protect those companies. Imagine you have farmers whose stocks are being traded in the stock market, I mean agricultural companies. You have industrial companies, manufacturing companies whose stocks are being traded in the stock market, and now their stocks are collapsing because they have been turned into a bubble. The government intervenes and it starts raising the tariffs on foreign manufacturers. And now you are protecting these companies that do not worth as much as they claim they are worth, which means that you are artificially raising prices and making the economy inefficient. Yes, they are US companies, but you have to let them go bankrupt because they have done very bad investing decisions. Yes, these stocks are US stocks, but the investors who purchased them have made bad investing decisions and now it's time to pay back for the mistakes that you have done. So because congress intervenes and it raises the tariffs, and it was also signed by the president, other countries began to retaliate by imposing tariffs on the United States as well. And it's very clear, after the United States has imposed tariffs, countries such as France and the United Kingdom also raised their tariffs on the United States. And that led to the fact that the entire world simply started launching trade wars against one another. And that led again to the US exports falling by 61 percent. If other countries are imposing tariffs on the United States, then US goods are going to become much more expensive in those countries as well. And that's why even if you see that Donald Trump is imposing tariffs on other countries, other countries, like especially the traditional politicians are trying to avoid this trade war because it could actually lead to the exact same outcome that we had back in the 1930s. And today the world is much more globalized than it was back in the 1930s. So US exports fall down as well because the United Kingdom, France, and other countries raise tariffs on the US goods. Now you had a bunch of bad businesses, and now these bad businesses that used to sell outside the United States are selling even lesser and they are being protected by the government. And that led to the great depression. So the crush of 1929 that's supposed to last a year or two now turned into a huge crisis. And the data on that is very clear. If you look at the unemployment rate in 1930, unemployment rate is less than 5 percent. It was about 3 percent. And then suddenly after the tariffs, unemployment rate starts to skyrocket year after year. At its peak, 25 percent of people were unemployed. Imagine that for a moment, 1 in 4 Americans does not have a job. They don't have jobs, they don't have money, they don't have money, they are not spending, economy is not growing at all. We have unemployment rate of 4.2 percent today and people are complaining that they cannot possibly find a job. Imagine what is a 25 percent unemployment rate. Of course, the US economy was much weaker than it is today right now. But nonetheless, if you look at the GDP growth, you see the exact same thing. It contracted in 1930 up until 1933. And the only reason that the United States got out of great depression is because the government was changed, the president was changed, and those tariffs were reduced dramatically and the United States realized that we have to trade with the rest of the world and we have to let bad businesses to collapse because they are simply bad businesses. If you are artificially creating demand for stuff that's supposed not to be there in the first place, then you are destroying the free market. If we compare that to what's happening today, we are seeing a very similar thing. The United States is on the brink of another recession. Now, this could be just a simple recession. Remember, the economy goes in cycles. It's very normal to have a recession, maybe even a slightly deeper economic crisis, which is absolutely normal. The stock market turns into a bubble, for example, because everybody is let's say in crypto, AI, you name it. And then suddenly we realize that those businesses are not making as much money, so their stock prices must correct themselves. That's the first thing. Secondly, there will be a lot of bad businesses. Between 2020 and 2022, a lot of companies emerged out of nowhere and their valuation skyrocketed. Remember the company that's supposed to call itself Nikolas and it's supposed to compete with Tesla. And then suddenly in 2022, when the era of cheap money ended, these companies went bankrupt. That is what's supposed to happen with bad businesses every single time. When you prevent that from happening, then you're going to have a very inefficient economy. It's not just a recession this time. It's also a stagflation, as I have explained in the previous video, that prices are rising on one side and the economy is slowing down. Unemployment is rising. It's not there yet, but if another recession this time is going to hit, which is most likely it's going to do like every single time, and we are having 1930s style tariffs, what is it going to do to the economy? The exact same thing as it did in the past. The effects of tariffs are not going to simply change simply because we are in the 21st century and not in the 20th century. A tariff is a tax on things that you're importing, and other countries also imposing tariffs on the United States will have the same impact. So far, the UK also said that they are not going to impose tariffs on the United States. But what about China that the US does not have a deal yet? What about Mexico? What about Canada? These 3 countries are the top 3 largest trading partners of the United States. Of course, the EU is as well, but we don't know the fact with the EU because the deal that they made with the EU is that they will purchase 6-750 billion dollars worth of American energy in the next 3 years, which is not happening. And when that is not going to happen, let's say within the next 6 months, there is no progress whatsoever. Donald Trump can simply say, I am going to raise the tariffs again. The same thing with Japan, by the way. Though those trade deals make absolutely no sense whatsoever. So when we have so much tariffs right now, it is going to worsen the recession that the US will face. And remember, the United States today is much more dependent on global trade than it has ever been in its entire history. If you pull out the top 500 US companies, you will see all of them are trading with the rest of the world. They are very deeply integrated. Take Apple, an American icon, you see their products everywhere. Take American car companies, you will see them all across the globe, not just in the UK and France and the European Union, but all across the globe. Pick up any company. And even if you don't have those companies that are in the top 500 largest companies in the US that trade with the rest of the world, you have local small businesses that trade with Canada, they trade with Mexico, they sell their products across the borders, and you don't have a deal with Canada and Mexico. If a recession is going to happen, and we are protecting bad businesses, businesses are going to suffer and consumers are going to suffer, and it's also going to lead to less exports unless these tariffs will be taken away. And I don't think that Donald Trump is going to back out from his plan and will continue to defend the tariffs because it was his main economic agenda. The only person that will take away these tariffs, and I firmly believe that it's going to happen, just like it happened back in the 1930s, Hoover introduced the tariffs because of the congress, and then Roosevelt was elected the president in 1934, if I'm not mistaken, or 1933. And then he realizes the impacts of the tariffs, he passes a law that allows him to negotiate the tariffs without the congress, and he suddenly starts getting rid of all of these tariffs, which was one of the fundamental reasons that helped the United States get out of this recession. And it wasn't a recession, it was a depression. We're actually looking into a very long, harsh recession unless the United States will back up from these tariffs, and I believe that's going to happen. So last time the United States took the exact same policy that's happening today, it led to the great depression. So let's hope that it's not going to happen this time. Thanks for watching and I will see you in the next one.