People are going crazy about this particular chart on Twitter. They are saying we are basically screwed because look, somebody put a blue arrow here and said you are here The first wave of inflation is rotating down and guess what you have ahead of You Hell Followed by hope followed by more Hell and the world is coming to an end because there are going to be three waves of inflation. and if you think you got hurt over the last year in the stock market and you're back in because you have hope, Well that. prepare to get screwed because inflation's absolutely going to ruin this economy.

The dollar is going to be worth less than the German Mark and we're going to war with China and Russia is going to start using nukes and the world is over. That's what you generally get when you're on Twitter it's not actually what I believe. Let's break this down and explain why this is unlikely or is it likely I don't know we'll explain in this video but first when I went on Twitter briefly to explore I actually saw this which I thought was really cool. Look at this Elon Musk liked your tweet I wrote unpopular opinion Those who drive distracted, texting, tweeting trading should have Tesla FSD Force enabled not disabled Of course that led to a bunch of people going Yeah, but then you're just gonna encourage bad behavior do I Honestly don't think there's a single person who texts and drives who's like I'm texting and driving because uh, be because I have FSD and I could just do it safer.

It's like people are going to text and drive whether they have FSC or not. I don't think you're encouraging bad behavior so people are going to do what they're gonna do anyway. It's kind of like I gotta says it's not a good thing. I'm not saying it's right, it's just saying people are going to do it.

It's kind of like why why in some places do people give uh, you know, clean needles to people? Uh, because well, because they have an addiction and you don't want them to die and you don't want them to throw needles around on the floor and in fact, other people. So you set up kind of safe spaces for people right? Again, Not saying you want to incentivize people using needles and stuff way things are, you know people are going to do what they're going to do anyway. That's a big societal debate we don't need to get into right now, because instead we need to be talking about these three waves of inflation. So are we going to face a 1970 style reanimation of inflation? And that is the big question.

And in order to understand this, we really have to understand history. So back in 1965, this inflation crisis of the 70s started and I'll give you an Abridged history. Okay, so 1965 the inflation crisis started. Part of it was due to Uh Nixon inheriting the Vietnam War and massive war deficits.

You had the guns and butter. Theory Back then massive spending on the war effort which ended up being not the best war to be involved in and in 1972 we ended up expanding. Social Security Nixon came out and said he was a Keynesian right. The year before that, he ended up imposing wage and price controls, fueling shortages, and we left the Gold Standard in 1971.

So hold on a second. That was a lot of information there. But what happened was you went from somewhere around one less than two percent inflation in the mid 60s to so by 1973 8.8 inflation. Why? Well, big reason was the initial imposition of wage and price controls which is a fancy way of saying we're going to put a ceiling on how much wages can be.

So instead of a minimum wage, it was like a Max wage to try to prevent a wage price spiral and limited uh, prices of things like gas during the oil embargo. When we basically said Fu OPEC we don't need you prices went through the roof. But because Nixon and other administrations set price controls and prices were limited, What happens? Well, you should remember this from Econ 101 when you set a price ceiling. What you do is you create shortages that's bad and shortages, mess-ups and break Supply chains.

Remember the images of people and gas lines waiting for to get gas at gas stations. Gas was cheap, but instead of paying with your money, you paid with your time. So economically the impact was actually worse. So you hurt the economy more because now people are paying with their time, not being productive members of society.

Free Market can't set prices because of these price controls. and so what ends up happening when all of a sudden the economy softens and the government's like, oh, we shouldn't be doing this And they remove the price controls, Businesses try to raise prices again. So in the early 70s you had a massive disaster. You literally had more spending via expanded Social Security and a war.

You had the Uh. these. this removal of wage and price controls now combined with the fact that you left the Gold Standard, so you destroyed people's belief that government could have any control over inflation. That's really really bad because it breaks something known as inflation expectations and inflation expectations would end up proving to be something that the FED called into credibility questions throughout the rest of the next decade.

Which is a big problem because if people believe that the FED has lost control on inflation and there's basically nothing that can be done to bring those inflation expectations back in, you end up having to force a massive recession to reign in inflation again. That ends up being what happened in the early 80s, but the first wave again. Vietnam War Social Security Inflation goes from about 1.6 percent to 6.5 percent in a matter of five years and then bumps up another 2.3 percent in just the next three years to 8.8 percent. It's a big deal.

It's a lot of inflation, and at the same time you started solving the problem of inflation and inflation started coming down. What you had ended up having was this reanimation. This right here was caused by the price controls, by the way. So here you have price controls and now all of a sudden you remove the price controls.

You actually let inflation come back because you've removed the price controls because you've created a recession. Now you're in the second wave of inflation. Well, what happened in the third wave of inflation? Well, this gets interesting. see the third wave of inflation.

Because these price caps were removed. You actually induce something known as a wage price spiral. and that's really bad. That's actually what.

Here in 2022 and 2023, the Federal Reserve has been convinced that they will never allow happen again because they realized it led to uncontrollable inflation in the early 1980s. So the point where the Federal Reserve had to raise rates to 20 percent to rate in upwards of 14 to 15 percent inflation. That's because wages were Rising so quickly increasing the input costs that businesses businesses then raise prices. But because people made more money, people were willing to pay those higher prices.

But then businesses wanted to preserve their margin. Jensen Because prices went up, people started realizing. oh crap, my wages are going up. Businesses are like crap I need to keep raising wages to allow my employees to actually survive so they get paid even more.

The prices get raised again because people are able to afford it. So you get the spiraling up of inflation and that's exactly what you had during the third wave. And one of the reasons you had that explosion was because inflation expectations were completely broken. So Carter appointed a Chairman Volcker in 1979 And Um, Volcker was somebody who actually preferred controlling inflation over low employment.

Compared to Aaron Burns, the prior Fed Chairperson during the 70s, you actually had a completely different Theory Now you might think this theory is wild, but the theory in the 70s was we will tolerate more inflation as long as the economy is growing. That is the total opposite of today. It's actually Volcker who started the theory of no, no, no, we can not tolerate High inflation at all. We must accept higher unemployment to kill inflation.

So you had a complete flip-flop at the FED not just in how high rates went, but also in strategy. Burns was also somebody who communicated in a way that made him seem like a Nixon shill that the price controls were normal and Volcker was somebody who's like, no, we need to control inflation and he was very straightforward in his communication with the public. And so Volcker ended up raising rates very clearly, forcing a recession, and made it clear that the Federal Reserve would not tolerate inflation ever. and that the only way to restore credibility was to prove that inflation was a number one priority.

In fact, yesterday I was reading some of the notes from the 1980s because you could actually go through the transcripts from the 1980s and go through and see what the Federal Reserve Board of Governors were saying in their meetings at the time of these crises. In fact, take a look at this. Here's one of the notes from August 1980 that it was that I was reading. It seems to me despite our roller coaster ride, we have not dented inflation expectations very much.

I Think we have a real Groundswell for an explosive development on the side of inflation. Again, in spite of all we've done, we haven't laid to rest the inflation expectations very much. This is literally out of a 90-page document here: I Was reading yesterday on page 17. You see them talk about the pain of not controlling inflation expectations and trying to figure out crap things are about to get worse.

This is terrible. This is word for word what's said at the Fomc meetings. It's really fascinating to read. but how does today compare to the 1970s? Because obviously there are some similarities, right? Some of the similarities would be.

Hey, then we had the Vietnam War and today we have this crisis in Ukraine. Then we had a supply shock because of Uh OPEC. We had actually two oil shocks. We had oil shock in 73 and 79.

We don't actually have an oil shock as bad as we did then. Then oil quadrupled and doubled. today. oil prices are still two-thirds of what they were in 2008.

So if you think there's an oil shock today, it doesn't even compare to the oil shock that we had in the 70s. But we did have a supply shock thanks to the pandemic, right? So you have war and you have a pandemic and you also have printing money while inflation is up. We expanded the money supply in the 70s just like we expanded the money supply. at the beginning of the 2022 era, while inflation was high, we were still printing money.

But what are the differences and are the differences? The key here and the answer in my opinion is absolutely in the 1970s we faced a wage price spiral where wages were Rising faster than inflation and showed no sign of stopping. We do not have that today. we do not have a wage price spiral. We also have the correct monetary stance.

Inflation over everything. We have very clear communication that inflation is the number one enemy and we're willing to suffer unemployment to get inflation down. We have the same stance as Volcker, not like the mistakes of the burns Administration We also had uh have have a very clear, clearly anchored set of inflation expectations today, and we still today face the structural deflation of innovation that we've seen over the last 40 years and our money supply is shrinking. So when you combine all of those factors: inflation expectations, structural deflation, lack of stimulus, proper communication, and the proper strategy at the FED With no wage price spiral, you really can't compare today to the 1970s.

So this is one of my beefs with Twitter. Even though I started off with having a like from Elon Musk which makes me just tinkle inside and get all happy. makes me want to tweet more. I Have to say Twitter is the one place to go for Content where I could look at things that are taken completely out of context and then make a 10 minute video on them.

try to try to unwind. What was the stupidity that was put together in one damn chart? It's a lot of work. This is the kind of stuff I teach in my courses on building your wealth. Link down below.

This is why I Think it's easy for anybody who watches me to be actually become a millionaire investing in real estate and learn about the psychology of money through the programs linked down below. But bottom line: line: out of all of this, do I actually think we're going to face three waves of inflation again? No, absolutely not. Could I be wrong? I Look yeah, Absolutely. am I 100 going right here? No, but I will tell you I'll be the first to flip-flop and let you know that I was wrong I don't care about being wrong I'm willing to be wrong and I'm willing to share my thesis with you.

but I have to say I get very frustrated when I see stuff like this shared on Twitter and then I compare it to history and I'm like how could you possibly compare then to now without addressing all of the differences but then again, that's the difference in my opinion between the short tweets you get on Twitter and the theory. uh, and sort of the longer analysis that you can get on YouTube and as a result I Hope you subscribe and always come back. Join me either in the videos when I post them or the meet Kevin report every morning at some point before the Market opens. Thank you so much for being here going over the course member livestream.

Now we're going to do some Fundy analysis so we'll see you soon! Thanks Bye.