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Oh. Essentially, Jerome Powell from the UK, this is Mr. Andrew Bailey from the Bank of England, who just said, and I quote, "Funds and firms, you have three days left." Yes, that's true. You see , the UK is taking this truly unprecedented approach that, frankly, could lead to disaster, but it's being taken to avoid disaster, as if it couldn't get any more complicated.
So, look, this is what's happening in the UK. Okay, the UK says, "Damn, we're going into a depression ." So Mr. Boris Johnson's government is being laughed at when he is being kicked out of office because people say, " Dude, you had a party during COVID." You are a hypocrite. "Okay, bye." So he leaves.
A new woman arrives, Liz Truss. The first thing her former KGB officer does is, uh, become something like their finance minister. The first thing he, uh, the stockbroker, does is say, “You know what? We're going to lower taxes for rich people, and we're going to send out STEMI checks for the whole energy crisis that we're facing, and we're going to lower taxes on real estate purchases because we're a nation of entrepreneurs, and we're basically just going to stimulate the economy." And the markets are like, "No, no, it's like Joe Biden is literally going to come out and walk away now, another $ 2,000 stimulus check ." Oh, wait.
That's exactly what California is doing with stimulus checks to ease inflation. But then again , California is not the best example of what should be done. After all, they are still building a train to nowhere, a high-speed train. Don't start talking to me about that. So now, because of this and this revelation that their finance minister actually went to a party with hedge funds after he cut their tax rates that night, uh, the new English government's popularity is lower than that of Boris Johnson, who was ridiculed out of office.
A bad start for an administration that is barely 30 days old. Anyway, after all this chaos that's unfolded in the markets, people say, " Oh, wait a minute ." So, you will try to stimulate while keeping rates low. You will create so much additional inflation that you will have to raise rates and catch up, because rates are much lower than in the United States.
You will have to pay for catching up. Not only do we think you'll have to raise rates by a full one percentage point in November, but we also think that even then you'll be way behind. So we're just going to get rid of our bonds, because remember, bonds have a coupon rate. And that 's why the bond market is basically so terrible.
Go cash. The Bank of England and the government are just stupid. And they start dropping everything. Which, obviously, leads to a drop in the prices of things. The British pound becomes effectively the British peso. Good, bad. joke. It's overused , but whatever . That's what many people said. Its value has fallen to almost a parody of the dollar, which is just crazy.
This is effectively the case where 1 dollar is equal to one British pound. We haven't seen anything like this in forever. I think the ratio was always 2:1 when I was a kid. Uh, you know, in 2021 a pound was worth about $40. It currently costs about $19. That's pretty low. He fell hard. Uh, and that's why people like to go for it .
Why invest in any bonds in the UK when we can simply get rid of the British pound, buy a dollar and get a risk-free 4% on a 10-year Treasury bond or 4.5% on a 2- year Treasury bond? What are we doing wasting our time on this with this government that on the one hand is trying to stimulate and cut taxes because we are a nation...
of entrepreneurs, and on the other hand they are destroying the pound market? And then, to solve the currency disaster they're creating and the bond market they're destroying, they say, "You know what? We are going to print money." But now they have created another term or problem, I would say, and the problem is the term.
You see Andrew Bailey today, who is essentially Jerome Powell of the Bank of England, and the Bank of England is not like JP Morgan and Chase, okay? It's a central bank, it's like the Federal Reserve, okay? So when you hear about the Bank of England , do you think of the Bank of England? Fedrew Bailey comes out and says, “Yes, this is a message to the funds and firms involved: you have three days left; you have to do it ." This is a quote.
This is a quote of what he said; he said, and I quote, "We announced that we are exiting the market." “I took into account the market share. We announced that we would be out by the end of the week. That's because they announced they were going to do unlimited bailout, essentially buying as many bonds as possible to try to create a floor on the price of these bonds that everyone is bailing out of.
Because remember what I said : why bother with the United Kingdom at all if those bonds will become worth a lot less when the Bank of England realizes they will have to raise rates a lot more. And when rates rise, the value of existing bonds falls. So let's just get rid of them now, shall we? So you have these bonds in England that are falling sharply in value, and the Bank of England actually comes in and says, " Hey, look, look, look, look." We will buy an unlimited number of these bonds and essentially create a floor price below which nothing can go, because every time we touch the valuation of certain bonds at that level, we will simply buy them.” " Well, the Bank of England is now saying: um, be careful, we're removing this lower limit on Friday.
So, um, fair warning, good luck everyone. Okay, this is where things can get really messy, because once the floor is removed, anyone who, like these firms and institutions, hasn't already liquidated their bonds will no longer have a floor price. And this means that if they urgently need to get the market value of their bonds, they may well not have the support, in essence, of their Fed.
And therefore they can receive a significantly reduced market value. And when these people receive a significantly reduced market value, everyone else who held the bonds on their balance sheets and has not yet disposed of them will be forced to bear losses on the market value, because the value of their portfolio as diamond holders or owners will drop sharply.
And suddenly the equity ratios in pension funds, firms, and anyone who holds bonds will be completely disrupted, and you'll probably start to see some cracks. There are no guarantees now, but there is a risk that in the next two…” Within three or four months in the United Kingdom you could see serious pension fund bankruptcies, business bankruptcies or just municipal government failures, right?
Local governments are simply starting to fail, to go bankrupt. We saw this in California in 2008. This is not surprising for California. But in any case, it's a little scary, because Friday is the deadline. So if you need something else to think about, like, "Oh my God, what else do we need to pay attention to, because this is already toxic enough." Well, the Bank of England is another very, very unpleasant one.
They tell you on Friday. They will still buy on Friday, but next week. You see, Friday also coincides with the expiration of coupons for wealth-boosting programs. The link to this is, of course, below . Lifetime access. Remember that part of the lifetime access is lost. But the next week and the weeks after that could be truly critical for the United Kingdom, because here's the thing.
If we see the Bank of England say, "Hey, look, we're going out." “And now suddenly the bankruptcies start, it will have a ripple effect throughout the United States, because even American companies have shares in businesses in the UK. And if businesses in the UK are potentially going bankrupt, it makes you wonder: is this some kind of tip of the iceberg, where something goes down, and suddenly, say, 10,000 people lose their jobs because Credit Swiss is laying off a bunch of people, you know, from Credit Swiss?
I know it's different from England, but the same thing happens in England. Then suddenly 10,000 people are not getting paid, who now have to fire their assistants, construction workers, and break their real estate contracts. They stop spending money on travel, goods, services, cleaners, and fuel for their cars because they're like, “Oh, sit down, honey.
We are in trouble." “This is bad. And then you have a real economic depression that you start to create at the same time as extremely high inflation. So now you really are in a stagflationary environment where central banks have to make that decision. Good. So, should we just try to save these firms or fight inflation?
And at this point, it seems like the choice will be: sorry, you'll have to go bankrupt. And that's why these companies go bankrupt. And at the same time, they continue to fight inflation while simultaneously suppressing and destroying demand. You will simply create a stagflationary depression. And the Bank of England and the UK could potentially be the tip of the iceberg.
We thought it was China . No, China is just... they're already depressed. Bank of England. Now we're starting to hit a little closer to home, because we actually have monetary systems that are not necessarily coordinated, but they're simultaneously trying to raise rates to combat inflation. China doesn't actually do this.
China is trying to stimulate, but not... » overstimulate . They are already so deeply immersed in this nonsense that they are already in a world of stimulation. They say, "We're not worried about inflation because, well, we do n't even have an economy right now." “Well, that’s just bad. But this video is not about China.
So watch out for the UK, because this 3-day warning is just not good. This will lead to more pain and instability in the markets. Again, we could potentially see more flight to US bonds due to this disaster in the UK. Interestingly, this could actually lower yields on, you know, U.S. bonds , because if there are more buyers in the United States, it could temporarily lower yields.
Uh, and that happened last time too. But I mean bonds today, 10- years today went up to 3.94. And this is despite the fact that, say, people think that many institutional investors come to buy American bonds. Once the Fed's quantitative easing actually takes effect, and if we get a miss with the CPI figure on Thursday, it could be a bummer.
I hope not. I hope not. Um, you know, I mean , at best we'll just get, you know, something like..." 7.5% reads the headline CPI and, uh, and we go, you know, we start to solidify the bottom. We don't want to go back to the Moon. So far, it's been bad karma. Anyway, thank you very much for watching. If this is stressing you out, be sure to apply for life insurance in just 5 minutes by going to medk.com/life .
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