Inflated values of financial assets such as crypto, stocks, and bonds due to raised capital can ultimately lead to stagflation and a recession. The raised capital must be invested in productive assets, such as businesses that can employ people and create products, to prevent further economic fallout.
The speaker predicts a massive recession for next year due to the current interest rate increases by the Fed and the high mortgage rates. The previous mild technical recession was caused by nominal GDP growth not keeping up with the inflation rate.
It's not always the case that the price of energy rises during a recession, but historically, it's always been the case that when energy prices spike by 50 percent, we enter a recession. There is a possibility for a coordinated effort by central banks and governments to provide liquidity to the market and subsidize prices coming down to avoid a global recession.
The technical definition of recession relies on two consecutive quarters of negative GDP growth, which is seen as outdated by many economists. With the current recession, there is a fear that policymakers could make the same mistake they did with inflation by downplaying its seriousness.
The importance of increasing disposable income to improve consumer spending and asset prices in the market is crucial. The impact of increasing debt service through rising rates affects consumer's ability to spend on other aspects leading to an overall decrease in asset prices.
This podcast discusses Druckenmiller's prediction of a recession in the real world economy, and how this can be a valuable guide on when to buy equities.