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 a year ago this week something happened and we have never been told exactly what happened but there was some sort of crisis in the global economy happy anniversary everybody this week marks the one-year anniversary of the beginning of the financial crisis that we are currently in and we are in a financial crisis regardless of whether the stock markets are going up or not and it has nothing to do with what happened in march and the world's current global health problem and things like that just ignore

all of that always pay attention to what the world's central banks are doing especially the federal reserve and that will sort of give you a clue as to whether or not there's something bad going on in the world economy or not the fed's stocks policy is exuberantly asymmetric now the fed is not supposed to have a stocks policy that's not their purview they are suppose that's they're they're not supposed to be fiddling with the stock market but they've made it their business

a falling market gets a swift response but the idea of raising rates to curb inflation inflated share prices has become outlandish and so uh whenever the stock market falls they uh we respond very quickly and then there is no action taken as things start to rise and uh this this first chart down here shows uh alan greenspan's responses and he reacted to the stock market it was lagging the stock market started to crash and here quite a few months later he starts lowering interest rates stock

market bottoms and it's quite a you know it goes up for more than a year before he starts raising rates and then ben bernanke took over in here somewhere and uh and then when the stock market started to crash actually he started lowering rates the stock market put in a double top there was something wrong in the economy remember the mortgage-backed securities and all of that stuff so he started lowering rates pretty dramatically and pretty quickly sort of leading the stock market and then we get down to something that i

like here this is on bloomberg and this chart is pretty much identical to a chart that i've been showing since 2010 11 12 something like that and so there's a bunch of phds now that are sort of legitimizing what i've been showing for the past nine years so i like that uh i think the chart that i uh generate actually has a little bit more relevance and is has a better correlation this is fed assets versus the s p 500 i use uh the base currency supply which is a reflection of fed assets

and the wilshire 5000 total market cap index which is the value of the stock market and then uh this shows that there's a lag time between what happens in the stock market fed reaction and then once the fed starts creating a bunch of currency there's a few weeks lag time before the stock market recovers and this professor uh talis uh putnan's putnam's putnam's i'm not sure sydney university uh he's sort of legitimizing the stuff that i've been showing for many years and i went into more analysis

of this in my book i will probably cut it now that a phd has has come up with it but if we move if we take a look at this chart and we go to a section from my book the great gold and silver rush of the 21st century which is not out yet i paused the book when everything crashed because um everything was cr changing too quickly and i wasn't sure whether or not the the stock markets had peaked and everything was over with and and this whole section of my book was going to be outdated so i paused it thinking i might just

scrap these sections uh but i'm and i'm going to do a video where you're going to see a lot more of this section but this section is uh about the mother of all bubbles and then the next uh chapter uh shows that the world is it was in these mass or is in these massive stock market and bond bubbles and there were a whole bunch of localized real estate bubbles but this is the wilshire 5000 total market cap index and this is the adjusted monetary base and the correlation from the start of qe1 to

the end of qe3 is an astounding 0.974 now if you don't know how correlations work a correlation of 1 means you're measuring the same thing if we took the wilshire 5000 total market cap index from 1990 through to today and we charted that and then we took it again and charted that and compared the two they're the same they would have a correlation of one if you've got a can of campbell's tomato soup and a can of candle campbell's tomato soup they have a correlation of one

they're exactly the same this was a correlation of 0.974 that means the federal reserve directly manipulated the stock market for nearly six years with a success rate of 97.4 percent therefore they get a great a in financial fraudulence but wait look you might say after qe ended base currency supply went down but the stock market went up that means the economic recovery is real well guess what i'm not going to show you this right now but later on in the chapter i show you that the amount of time since 2008

that the fed hasn't been actively manipulating the stock market with quite an astounding correlation a success rate measures in the months it isn't years that they've gone without manipulating it's months there was manipulation going on during all of this time so moving on i want to get down to black swans and fat tails in that same bloomberg article investors often complain about black swans the extremely unlike unlikely and very damaging events a lot of supposed black swans are

nothing of the sort they are merely events that investors had wrongly failed to anticipate what happened to the world economy in the second quarter however is different long experience would have suggested that it was frankly impossible i take exception to that they go on uh saying that uh something we'll get back to this in a second but i want to take exception to this and show you that if they had this says long experience what they're measuring here the the uh this is uh an article that they're going to go into that was

was from some analysis that s p global did and they didn't go back far enough and they're talking about the crisis of 2008. well if you go back far enough you can find things like they're talking about they're talking about the crisis of 2008 and the uh current economic crisis and the thing is if you go back far enough you can see that their models did not incorporate enough data and their models were wrong their models were broken this is the producer price index of all commodities

going all the way back to 1913 january of 1913 and so here uh world war one breaks out in nineteen this is uh the federal reserve act is approved in december of 1913 the federal reserve opened their doors for business in november of 1914 and then world war one breaks out and they immediately start increasing the currency supply now remember uh what they usually do is they buy u.s treasury bonds well back then the national debt was one billion dollars at the beginning of world war one it was 25 billion dollars at the end of world

war one and so they increased the currency supply to support all of this and then in uh february of uh 1918 that was the first reports of the spanish flu and then uh the spanish flu had researched three different waves of it and the last wave was in april of 1920 so this is the spanish flu and then the soldiers were coming home and the markets crashed the uh we had the greatest deflation in us history i used to give presentations with robert kiyosaki all the way back in 2005 6 and 7 and i called this the depression of 1921

i was the first one to coin this as the depression of 1921 and what was amazing is it was over with uh in no time at all simply because the government and the federal reserve did not rush in to try and save us within a year and a half this was the the this depression was over with now look at the scale of this deflation this is the great depression right here it's nothing compared to the depression of 1921 but here the government the federal reserve rushed in to save us right away they started

manipulating things and they turned this into this is the uh what's called the roosevelt recession within the great depression so this whole area here is the great depression and then we have world war ii and the expenditures uh and you know it's these are very interesting interactive charts you can expand these and uh see uh the prices rising uh but if you go all the way out to today this is the end of um august of 70 august of 71 is the end of the bretton woods system right there and you can see a direction a change in

the direction of prices so that's the uh the depression of 1921 the great depression is all across here and so let's go over to uh currency in circulation and take a look at what that looks like back in the uh so here they're ramping up the currency supply the federal reserve and then um april of 1920 the spanish flu is over with it keeps on rising for a while the currency supply but then there's this big deflation that happens in 21 and so that's uh that there is something that they could

have looked at if they had incorporated this data and said what was happening during we had war and we had a global pandemic going on and then there was this big deflation right afterwards uh here is the uh an index of common stock prices of the new york stock exchange so this is all the all the stocks on the new york stock exchange and what you see here is uh an inflation happening and a big blow off top toward the end of world war one world war one ended in november of 1918 and uh soldiers coming home uh

the uh spanish flu ended in uh april of 20 and so um march april right there at that last peak and then stock market crash and so um there is data that they could have gotten to say that what has happened was possible uh black swans and fat tails many of the problems from 2008 crisis stemmed from modeling assuming that outcomes would follow a classic normal bell curve distribution with only a few outliers 95 percent would be within two standard deviations of the norm and 99 would be within three

the problem arose when the bell curve when bell curves stopped looking like bells and became asymmetrical or developed fat tails with a big number of outcomes that fell more than three standard deviations from the norm now let's look at uh some bell curves here this is a standard bell curve and so uh 68.3 percent of all of the probabilities and outcomes typically fall within one standard deviation that's this uh 95.4 within two standard deviations and 99.7 percent within three so that means only

0.3 percent fall outside of that three standard deviations let's look at some of the likelihoods now this all has to do with the question does the federal reserve and the world's other central banks know what they're doing i believe they don't and i think some of the data in in here once you see it you're going to come to the same conclusions so this is from wikipedia and this is standard deviations uh two standard deviation happens like once every three weeks three standard deviations yearly four

standard deviations once every 43 years or twice in a human lifetime five standard deviations uh once every roughly five thousand years are once in recorded history six deviation standard deviations one in every uh one and a third billion years or twice in the history of humankind uh and then a seven sigma event uh is once every one billion years or four occurrences in the history of the earth now what's interesting is that first occurrence would have happened in a period of time if you see

here this is uh this portion here is uh marks the late heavy bombardment the late heavy bombardment the earth was molten it developed a thin it developed a crust and then a whole bunch of meteors there was this huge period of time where a lot of meteors struck the earth and we wouldn't have any gold available to us on this planet if this hadn't happened gold or silver when all of these gold-bearing asteroids struck the crust it melted the top layer of this crust but there was already a mantle that had

formed underneath that so the gold the the first uh the the creation of the earth there was a lot of gold but it all sunk to the core because it's so heavy so it was it's not accessible to us this late heavy bombardment is the reason all gold that's uh in the earth's crust that we are able to find and dig up exists uh but basically the first one of these uh uh six of these seven sigma events the first one would have happened when the earth's crust was still molten so moving on the problem

was that the bell curve stopped looking like bella curves and became asymmetrical or developed fat tails with a big number of outcomes that fell more than three standard deviations from the norm now let's look at the bell curve for quarterly gdp growth in the u.s and the eurozone since 1995 as assembled by the team at s p global we will come back to this in a second until this quarter the graph does indeed look like a normal bell curve with a touch of kurtosis meaning that it has a peak that is a

little high and tails that are a little too long it also it was also slightly asymmetric uh with the eu in particular being far more likely to deviate to the negative side untrue the the author here has these reverse negative and positive side i'm going to show you that right here just so you know what kurtosis is and this is a normal one this is positive skewed to the left negative skewed to the right if i was naming these i would have named the exact opposite but i wasn't around then and this is

kurtosis leptokurtic is tall and skinny platykurtic is a short fat bell curve so getting to the chart this is a hard chart to read it took a little while to figure out what was actually going on here the u.s is blue eurozone in orange the positively shifted now they said negative in the article notice that the peak for the eurozone is shifted toward the left and the peak for the us is a little bit more centered maybe even shifted a little bit more to the right so the eurozone has a positive shift

the us a negative shift but in this case and in most cases the negative shift would be good now the way you read this chart is this is uh the number of quarters uh from 1995 to 2020. so this is 100 quarters of uh either measuring growth or contraction and this scale across the bottom here very poorly labeled but basically this is deflation it's not deflation but negative growth yes it's deflation it's quarterly gdp contracting of uh half a percent to a tenth of a percent of contraction and that is this one

right here so this one that scale is missing that would be zero percent to uh zero point four percent growth uh this is zero point five to zero point nine uh one percent to uh point one percent to one point four percent would be this and what they're doing is this height right here is one quarter and so this is the number of quarters and they're stacking them up and so the us has had in in that in the 100 quarters that exist during this period of time has almost 50 though of them close to

half have fallen in this range where we grew at a rate of 0.5 to 0.9 percent and then along came uh the global health problem and the second quarter of 2020 uh we contracted uh 9.5 to 9 that range of 9.1 to 9.5 the eurozone 12.1 to 12.5 contraction uh it's actually larger than that it depends on whose data you're looking at but moving on so now that you know how to read this so this is the bell curve and this is a fat tail or a long tail uh that is statistically impo impossible now if they had

gotten data going back to the last uh global health problem uh back in 1917 and 18 back in 1918 through 1920 they would have incorporated some data that would have uh supported that so paul gruenwald the global chief economist at sap global ratings estimates that estimates that the u.s and the eurozone second quarter growth numbers were 11 and 17 standard deviations away from their respective means this compares with 3 and 4.5 standard deviations respectively for the worst of the global financial crisis this reminds me of a

darkly comedic incidence in the summer of 2007 as the forces that would create the crisis were beginning to make themselves felt a group group of quantitative funds now quantitative funds these are funds run by people that are called quants they're quantitative uh they are calculator-brained people that analyze things uh had all simultaneously suffered a series of losses that the models suggested were statistically impossible goldman sachs group was obliged to spend money to bail out the the funds asked to explain what had gone

wrong the chief financial officer of the time david vinier said the models were buffeted by 25 standard deviation events several days in a row this provoked a great post-bag of statistics professor one suggesting that consecutive 25 standard deviation events might never happen even in the full history of an unimaginably large number of universes now the universe is 13.8 billion years old and i don't know if an unimaginably large number is a million a billion a trillion a quadrillion a sextillion or a

googleplex i have no idea what an unimaginably large number is but it's definitely a number so high that only dogs can hear it [Laughter] so another way is what vineyard was saying using statistical jargon is that what had happened had in fact had not in fact happened what had just happened had not in fact happened what he really meant was that goldman models were totally totally failed to predict just how likely such an event was which means that the models are broken and the fed's models are broken

this is goldman goldman pays the big bucks they've got the best quants the feds quants are second rate compared to goldman's quants i guarantee you the fed does not pay the big bucks goldman does uh five sigma you know so this is uh you know uh masterpiece of the gen year five sigma event corresponds to an expected occurrence of less than one day in the entire period since the end of the last ice age six sigma corresponds to an event expected one day in the entire period since our species

evolved we covered that seven sigma event uh one occurrence in less than less than once in a period approximately five times the length of time that has elapsed since multicellular life evolved on this planet so a 25 a 25 sigma event confronted them with problems as excel didn't have enough numbers to cover it i think this is hilarious that means it's impossible what it means is that uh they're not taking into account the actual possibilities their models are broken and one of the things that

they use is uh these dynamic stochastic equilibrium models and as jim rickard points out uh they the this is what's actually happening you needs complexity models to analyze it anyway here we are happy anniversary the crisis actually started a year ago this week this is uh research repurchase agreements so this is fed assets on the fed's balance sheet repurchase agreements the week average and what you see here is alan greenspan's response to the potential y2k bug and then when he took currency out of circulation

the nasdaq peaked and crashed we had the tech bubble pop and so this is the response to all of that happening this is 9 11. this is the ben bernanke's response to the 2008 global financial crisis when it comes to repurchase agreements and then they stopped using these things everything used to be these dials and levers and they used to dial up uh interest rates in the currency supply and you know uh um uh the different you know a little bit more open market operations now everything is a switch they switch it on they

switch it off or it's a button you push it in push it on and you can see that they just switched this off and it went to absolute zero and then a year ago this week something happened and we have never been told exactly what happened but there was some sort of crisis in the global economy and the there was some this this these repurchase agreements this is when a bank needs an overnight loan they have a sudden drastic need for cash now a lot of these repurchase agreements get rolled over day

after day after day there's also week long repurchase agreements and and month and year long and so on uh but they're much more rare usually it's rolling one day repurchase agreements 24 hour repurchase agreements and what you see here is they switch it on and then they switched it off like last march or something but don't worry because they switch other stuff on and off this is u.s treasury bills now there are bills notes and bonds as far as u.s treasuries uh bills are under one year

notes are one to ten years uh bonds are 10 years and or over 10 years and so what you see global financial crisis of 2008 what they did was they took these uh treasury bills and they swapped them with banks for the toxic assets the banks had so they were swapping thing getting things like mortgage-backed securities and such off of banks balance sheets giving them safer assets such as u.s treasuries and they went down to zero here and then suddenly bam there's they're not you know there's no more dials and

fine-tuning levers and fine-tuning of things it's flick flick flick flick uh and so uh going on with it here's uh total assets and what you see here is they give a bunch of bonds to the banks and swap out stuff so this is assets securities held outright so this is the securities that they had fell but there were other assets that went up and then this is qe1 qe2 qe3 this is the taper and then this is the beginning of the financial crisis that we are currently in it didn't start with the stock market

crash in march and so moving on to the next chart this is uh us us treasuries held out right so it's fed assets and here you have the global financial crisis of 2008 and they're swapping out those bills and then this is qe1 qe2 and this is millions of dollars acquired each month or each week i'm sorry this is the wednesday level each week and this long you know here there was sort of a pause where it nets out to zero and then uh here it's this positive accumulation over a long period of time that's qe3

this is the taper and then one year ago this week the financial crisis that we're in now starts do you really think the fed knows what they're doing uh this is mortgage-backed securities wednesday level uh i think that they're just re-categorizing this this is the commercial mortgage-backed securities a little over nine billion residential uh a little over it's almost two trillion you stack that nine billion on top of here and you get the total i think that they're adding two new categories to

measure this and the categories are splitting out mortgage-backed securities into residential versus versus commercial because here's the total and you know they start this split out like right here so this is the total but we're almost to 2 trillion which means the federal reserve owns more real you know the these they are the lien holder to all of these properties they uh can you know if somebody can't pay uh the federal reserve is the re lien holder they're basically the owner

of this real estate until that real estate gets uh purchased now if it's two trillion remember you have to put something down and you might gain equity in that so that means the federal reserve probably owns like three trillion dollars worth of real estate because they're the lien holder on that real estate that has most likely a higher value than the mortgage-backed security that that loan was packaged up into so getting to the point of all this the federal reserve gets to counterfeit currency into

existence and buy up more real estate than any entity on the planet and now it goes into the stock market this article the federal reserve becomes the world's biggest investor and what it talks about is that their balance sheet has just expanded uh to and it hit a record the federal reserve hit a new milestone in the race to have the largest balance sheet in the world and they've been uh creating currency non-stop in 2020 just going berserk and then you get down to this chart and we'll go up

to a close-up of the chart and they start with assets you know in the the size of the position of treasuries and then they go down to the bottom of this chart and a t aig global 3m company there are now 22 900 913 items on the feds balance sheet here so uh what that means is that they're adding more and more and more complexity to their system they're adding more switches and buttons to push i don't know if you've ever seen uh one of these guys that spin plates but there's this long stick that sticks

up from the floor some mounting platform and the guy will put a plate on top of it and start spinning it and then just get that plate going and then he does another one and then another one and then another one and there's a certain point where you add too many of them and try to go back and keep these other ones spinning while you're adding another one just becomes too much and there's a certain point where they just all start to crash to the ground because they made the system too fragile and we are getting to that

point where the fed has made everything so complex and so fragile that i am really concerned that we could see a major uh you know potential collapse of the global economy because of adding continuous complexity into the system anyway i want to ask do you really think the fed knows what they're doing and i also want to say happy anniversary we'll see you next time