Part 2 Coming 11/12/2023
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Economic Overheating: Recognize signs of an overheating economy, such as rising asset prices, excessive borrowing, and unsustainable growth rates. Risk tends to concentrate in specific sectors.
Government Response: As risks become evident, governments and central banks react by tightening monetary policy. This could include raising interest rates, reducing government spending, or implementing regulatory measures to cool down the economy.
Crisis Point: Despite best efforts, something in the system becomes overstressed and breaks, leading to a financial or economic crisis.
Stimulus Measures: Governments then shift gears, introducing stimulus measures to support the ailing sector. These responses are targeted, aiming to stabilize the economy and restore confidence.
Inflation Creation: Over extended periods, central banks and governments introduce policies that lead to inflation. This might be through quantitative easing, deficit spending, or other expansive monetary policies.
Policy Reversal: As inflationary pressures mount, governments and central banks recognize the risks and begin to counteract by tightening policies. This often involves increasing interest rates or reducing government spending.
Crisis Eruption: Despite these corrective measures, another part of the economic system becomes vulnerable and a crisis erupts.
Innovative Responses:** In the face of these new challenges, governments innovate and deploy untested measures to stabilize the economy.
2008 Financial Crisis: The government stepped in to bail out major institutions deemed “too big to fail,” such as car companies, banks, and housing giants Fannie Mae and Freddie Mac. This was unprecedented in its scale and scope.
2020 Pandemic Crisis: The Federal Reserve created a novel facility to buy corporate bonds, including those of major corporations like Apple. This move was designed to provide liquidity to companies and stabilize the corporate bond market.
Future Possibilities: Each crisis tends to open the door for measures that might have been politically or economically unfeasible before. For instance, the idea of a Universal Basic Income (UBI) has gained traction. While only tested in small scales around the world, a significant economic downturn could push governments to adopt such measures more widely.
Recent History 3:07
Crisis Innovations 6:50
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