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Government interference in the stock market is generating a Cobra Effect on the market.
But what does a snake have to do with finance?
Time for a thread
But what does a snake have to do with finance?
Time for a thread
1/ The Cobra Effect is when the solution to a problem makes the original problem worse than it was to begin with.
2/ The name comes from a situation that happened in Delhi, India.
They had a cobra problem.
So the government decided they would give a bounty to everyone who brought them a dead cobra.
At first it worked.
Then people began breeding cobras and killing them.
They had a cobra problem.
So the government decided they would give a bounty to everyone who brought them a dead cobra.
At first it worked.
Then people began breeding cobras and killing them.
3/ Then the government stopped the program.
The people who had been breeding the cobras let them loose and the cobra problem was worse than it was before the cobra bounty program.
The people who had been breeding the cobras let them loose and the cobra problem was worse than it was before the cobra bounty program.
4/ How does this relate to the stock market?
Government stimulus and Federal Reserve money printing could be setting the US economy up for hyperinflation.
In the short term the Fed printed money to save the American economy from a deflationary disaster.
Government stimulus and Federal Reserve money printing could be setting the US economy up for hyperinflation.
In the short term the Fed printed money to save the American economy from a deflationary disaster.
5/ In the long run, when demand returns there will be more dollars chasing the same amount or even fewer goods (some businesses went out of business).
Basic supply and demand dictates that this will cause upward pressure on price and cause a significant amount of inflation.
Basic supply and demand dictates that this will cause upward pressure on price and cause a significant amount of inflation.
6/ Government originally intended to help out people in the lower and middle class with these policies.
However, as inflation kicks in people with assets (upper middle class and above) will have their wealth increase with the money supply.
However, as inflation kicks in people with assets (upper middle class and above) will have their wealth increase with the money supply.
7/ And the people who will suffer the most will be the middle and lower class because their dollars will not go as far.
This could lead to more money printing which will, in theory make them even worse off.
This could lead to more money printing which will, in theory make them even worse off.
8/ Hopefully this thread shed some light on why people are against government printing money.
9/ Some shield their money from inflation by investing in assets (stocks and real estate) which will rise with the money supply.
Other instruments used for this trade that people expect will yield more of a return (because they are more speculative in nature) are Gold and BTC.
Other instruments used for this trade that people expect will yield more of a return (because they are more speculative in nature) are Gold and BTC.
