So we finally have the first rate hike in three years. Interest rates were raised for the first time since 2018 and the market pretty much took it in stride. It's not to knock on john powell and his press conference. I mean look, he didn't crash the market, which was good.

He didn't blame putin for february inflation, like biden did, which was good and he didn't say anything about inflation being transitory. So you know three out of three look on the serious note we're looking at point. Twenty five percent rate hike now markets have been ready for this, and i got ta give credit when credit is due. The fed basically deserves a lot of respect.

They made it a very soft landing. Nobody was surprised and the market pretty much took it and just enjoyed the ride now the fed, when credit is due, we have to give them the credit. They did a good job massaging the market into this now. The real question remains is how much of the next interest rate hikes are priced in because that's a whole different, enchilada and i'll explain, basically we're looking at five or six more rate hikes this year in 2022, meaning we're gon na end 2022, with anywhere from 1.75 To 2 interest, that's right now, a given.

The fact is that we just saw 0.25 puts us on this course to 2 by end of year and the real question: how much of that is priced in into the market? That's a question. I don't know nobody knows, but let me tell you something else that is not going to be enough and i'm not talking about the 0.25. I'm talking about the 2 percent. Look there's a very well known rule and the economist here will agree or disagree with me in the comments.

Let's see it's called the taylor rule the tail rule just to keep it simple basically says if you measure the difference between what is accepted, inflation, which is two percent, and what you actually have right now, which is right now, seven point: nine percent, let's just say Eight for simplicity: that means you have a gap of six percent between your accepted and your actual inflation for every percentage point. That means you have six. You need two percent of interest to combat and stop inflation, meaning that right now today, we need 12 of interest. Now, look i'm going to be honest with you.

0.25 percent in this market is pretty much like saying. Well, you know i just ate, you know a whole bucket of ice cream and like eight slices of pizza, but you know what i'm gon na. Have you know a sugar-free soda, my guy, the sugar-free soda, isn't gon na save you from whatever garbage you just put in your body just a second ago, and i want to know about this sort of thing, because this kind of scenario played out my house more Than once, including the sugar-free soda, you have bigger problems and in our case the bigger problems are not really. The sugar-free soda are not really the 0.25 or the 2 interest is the fact that the market needs to see double-digit interest to make it out of this inflation, because inflation is definitely not transitory.

Now we know this is a fact. We also know that oil prices are going through the roof, we've seen 130 already right just two weeks ago, and now we think that a hundred dollars per barrel is not that high, but at a hundred dollars per brand, we're talking for a lot of inflationary pressure When energy becomes so expensive a hundred dollars a barrel that puts massive inflationary pressure on the market. Now we don't know exactly what's going on in china, with the new covet variant and any supply chain pressures that might put or any decline in energy consumption that might put so, let's just put that to aside until we know more information from china, but with these Energy prices we're looking at more inflation and the question is: how can we bridge that gap from 0.25 to 12, which is where we have to be now? Look you obviously can't just you know slam the economy into a wall? That's not good! Raising interest rates to 12 right away is going to crash the economy, not a good idea now. The problem is we really can't and that's the big secret right now we have 120 of gdp to debt.

That's a massive ratio. We have 1.2 x that compared to gdp now look that means a lot of dollars are going right now to service this 30 trillion dollars of debt. In fact, last year we paid 560 billion dollars in interest payments and that with interest rates, pretty much close to zero. You understand how much money we're talking about 560 billion just on interest, that's more than the combined worth of elon musk jeff bezos bill gates, mark zuckerberg and warren buffett.

All of them together are worth about 500 billion. So you have to understand that for every one percent that the fed is gon na hike, we're gon na pay 200 billion in interest payments to service that debt. It's a lot of money right now. They just did a minimal 0.25 percent.

It's not that bad, but as we get closer to one percent, it's going to start being painful and if you just go back to a minute ago, i told you we're probably looking at 12. If you really want to fix this. So, what's going on right now, the fed has to communicate as if they have free will to do whatever they want, when in fact they don't until the government fixes the problem. As far as finding solutions to handle this national debt, they can't really raise interest beyond.

You know, quarter percentage points here, a few quarter percentage points there. They could probably go all the way up to two percent by end of year, but at that point they're going to be locked out, the government is the one that needs to find solutions because it needs to allow the fed to do what paul volcker did in The 70s now i'm not saying they need to raise 20 interest, but i'm saying they need to be able to be at three four percent today at minimum, which they can. That means lowering energy prices. We have to work with opec, to increase supply, to lower the prices of energy.

Until that happens, we're pretty much screwed. That means supply chains improvement. We got to make things move faster. These shortages are increasing prices.

We have to take control of the wage increase. It's insane cost of labor is going through the roof. We can't battle inflation with that. We have to start working out the thing that we basically created ourselves, which is a massive money supply in the system we have to eat through that we have to increase gdp.

So we increase more tax collisions because you increase tax collections. You can actually pay for servicing the debt. Now that is just the beginning. You have to roll over some of the debt from the variable cheaper interest to the more expected.

Sorry, the more expensive interest rates that are custom when you go 30-year. So when you push more debt towards long-term fixed, you might take ahead. You know pay a little bit more or a lot more, but you become immune to interest rates increases. So there's a lot of stuff.

The government needs to start working on to allow the fed to do their job and right now. None of this is being done and that's the real problem. That's the haagen-dazs in the pizza. These interest rates on their own are meaningless.

Without actual solutions from the government and that's why i think the entire debate on mainstream media is lacking because nobody's talking about that point, what's the government doing as far as allowing the fed to raise interest rates right now, they're locked out because look if the fed Raises interest rates abdu, wazoo and the government didn't solve these problems. It just means we need to print much more money. We need to print much more money, we're flooding the market again with more dollars causing more inflation. So we really ain't really solving anything think about it.

Now. Look it's still a nice progress. At least we do have that crossing of the threshold of actually raising interest rates. For the first time in three years, we've managed to do that.

The market didn't crash hallelujah. Now it's time to get to work the real world, that's not gon na be easy! Now let me know below what you guys think and as always, if you want to support this channel and enjoy these sort of videos, because you know they're not really that monetized, i mean nobody really likes to talk about macroeconomics. Only geeks like me and you you can support the channel by joining as a channel member by clicking on the button next to the subscribe button or joining a patent. It's five bucks a month and you'll be supporting the channel and joining our zoom calls.

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