How I see the world in 2022
Here is a short summary of everything I have learned over the past 2 years from experience, reading books, and researching.
A little background about me, I have been interested in the global markets and investing for about 13 years now. I started reading the Motley fool in high school and continued learning about macroeconomics and the stock market ever since.
Before the start of the pandemic, I was able to spot and capitalize on the world events caused by the virus.
Soon after the pandemic was declared and having made some good investments I fell into the trap of emotions and made some bad investment decisions. This caused me to dig down further and understand what I did wrong.
My mistakes were caused by weak understanding of interest rates, QE (Quantitative Tightening), and how governments respond during major crises.
What I learned (how governments function)
There are two levers that the government pulls. One is to raise interest rates and take money out the system and the other is to lower interest rates and inject money into the system.
Essentially, making money more or less available to everyday citizens through interest rates and overall money circulating in the economy.
During major economic crashes or pandemics, the governments are forced to print a lot of money to support the economy. This injection of money in the system gives a break to those in need, which was much needed during the pandemic. Without the quantitative easing that occurred during the pandemic, we could have been in a much worse situation. However, since the governments all over the world stimulated their economies, we were able to navigate out of the crisis very quickly. In record time actually.
What happens after (Quantitative Tightening)
Unfortunately, there is no such thing as free lunch. Eventually the debt has to be paid back. Since there was now too much money circulating in the economy, everything went up in price. This is called “Inflation”.