THE FED JUST BAILED OUT THE STOCK MARKET AGAIN

What's up you guys, it's Graham here. So it finally happened! It's now official! We've been waiting weeks for this announcement to come to light, and until now we've just been hypothesizing about what's going on and how this is going to impact everyone watching. But today, I'm very proud to say that I'm actually wearing pants today. Uh, if pajamas count as pants, which I think they do. But no, don't get too excited just yet; that's not the important announcement.

Instead, it's what the Fed just implemented that not only affects the future value of your money and your investments, but also the entire economy and how much you get paid in a savings account. Not only that, but depending on which side of this you're on, this could either be really good news for you or really bad news for you, depending on what you do with this information.

So here's what we're going to do: I'll explain exactly what these new changes are, what this means for the future of the real estate market, the stock market, inflation, and the value of your money. Then, I'll tell you what you could do with this information to make the most of it. I know I'm biased when I say stuff like this because obviously I'm the one who made the video, but I highly recommend you guys watch this one until the very end. These next 10 minutes could potentially save you a lot of money, and the more you know, the more money you could potentially save and make.

And of course, if you appreciate information like this, just make sure to jPow that like button until it turns blue, and let's make that like button hit its new all-time high just like the stock market. Think of it a bit like a game; all you've got to do is just press that button, and then that's it—you won the game. Thank you so much, and we'll begin right here.

So this is what just happened and why it's so important. The Fed held a meeting yesterday morning with regard to the new policy on inflation, which is how much our money devalues over time relative to what you could buy with it. Like, you know how grandparents would always tell us stories about how a movie used to cost a nickel or how you could go and buy a house for thirty thousand dollars? And now, a movie costs thirty dollars through Disney Plus, and a house is more than you could ever possibly afford because someone else is willing to pay cash over asking without contingencies.

Well, partially, you could thank inflation for that. Over time, the cost of goods and services goes up while the value of our money goes down. As a visual of how this works, I created a quick mock-up on Photoshop to show you guys in a very simple form exactly what this means. It's like saying one of these fun coupons can be redeemed for this disgusting Starbucks coffee. It seems like a fair trade, right? One fun coupon, one coffee.

Now, at a normal pace, if Starbucks has as many coffees as there are fun coupons in circulation, all is well and there's no inflation. But when there are more fun coupons printed than there are coffees for sale, more people begin using their fun coupons. Starbucks sees demand for the coffees rise because there are more fun coupons than coffees to redeem them for. So they do what any reasonable business does: they raise prices.

Now it takes two fun coupons to buy that same one coffee because everyone has fun coupons, but not everyone has coffee. Remember, the coffee is still the exact same, but now your fun coupons are worth half of what they used to be. The more demand there is for a product, service, or investment, the higher the price will go, and the less your money buys you of it. In more simple terms, your money begins losing value the longer you go without spending or investing it. Normally it's not that big of a deal, and inflation happens pretty slowly.

But now, the Fed made some pretty substantial changes that have the impact to affect our money much faster than it did previously, and also how much bang you could get for your buck. How is that for a cliffhanger at the end of this segment?

Okay, so here's what the Fed just said, and then I'm going to be going over what this means and how you could use this to make money. Previously, the Federal Reserve has set an inflation target of about two percent per year. This means that every year your money is going to be losing about two percent in value relative to what you could buy with it. So that item that was a hundred dollars last year is now selling for a hundred and two dollars today.

Or if we flip things around, a hundred dollars you had last year is only worth ninety-eight dollars in today's money. Now this is not a hugely significant change to the point where you need to start carting your money around to the grocery store to buy a loaf of bread, like in Zimbabwe, or throwing everything into Bitcoin because you don't trust the Federal Reserve. But it's enough to incentivize people to spend or invest their money consistently; otherwise, it's slowly going to lose its value.

And that brings us to today. Like I mentioned, the Fed has been aiming for a 2% inflation rate beginning in 1996, and that was formalized in 2012 as the benchmark to hit every single year. But of course, there's a problem: as they say, more money, more problems. In the past, they would sometimes hit that two percent inflation rate. Some years were higher than that, and other years were lower than that, but that didn't really matter. Each year is meant to be independent from the last, so it makes no difference what happened last year as long as this year you aim for two percent.

But what ended up happening was that inflation has been consistently lower than two percent every year, leading the Federal Reserve to be underperforming against their two percent target. And listen up, I know you're probably thinking by now, "But Graham, I don't care what you're talking about, right? I just—I want to know what to do with my money right now. Stop rambling!" Yes, I'm getting there, but once you understand how this all works, it's all going to piece together and make sense anyway.

Because the Federal Reserve has not been seeing its two percent inflation rate every year, and this year is pretty much no inflation because everyone is hoarding on to their fun coupons and not redeeming them for Starbucks coffee, we could let inflation go as high as it needs to as long as we just average out eventually to two percent a year. That means if we see one percent inflation every year for ten years, the Fed would have no problem with sixteen percent inflation the following three years, just if that averages out to two percent a year.

That also means if we take our average inflation rate since 2012, we come up to an average amount of 11.8 percent worth of inflation over the last eight years. Under this, over the next year, the Fed could potentially drive up inflation 6.2 percent, and then technically they're able to hit their average long-term of their two percent. Think of this almost like making up for lost time or encouraging short-term inflation with the expectation that they can always bring it down in the future once the economy recovers.

When it comes to this, let's talk about the good news first and then we'll talk about the bad news because everyone likes the good news first, right? Maybe not, but anyway, here's the good news for investors: this means the value of your investments could be going up. That's because, generally speaking, asset prices like stocks and real estate rise on pace with inflation. As more money becomes available within our economy, either from lower interest rates or for more money being printed into circulation, usually that money is spent and then dispersed back into the economy, inadvertently boosting up stocks and real estate prices as people earn and spend more.

Many investments are also seen as a hedge against inflation for that very reason. Like a house is always going to be a house, and over the long term, housing prices have generally risen alongside inflation. That means that hypothetically, if inflation is five percent next year, housing prices should also rise hypothetically an extra five percent. And when rates are cheap like they are right now, people are able to borrow more money and spend more money, which at some point or another flows back into the stock market.

The second for anyone holding on to loans, especially mortgages, this could be a really good thing. Like, if you have a two percent mortgage on a property but inflation is three percent per year, that means that loan is becoming cheaper to pay off every single year because inflation is just eroding away at that value. Remember, a hundred years ago, twenty thousand dollars has the same buying power as 259,000 has today.

So in that example, you would be getting 259,000 worth of value for the price of only 20,000 today. So your mortgage, combined with inflation, works pretty much the same way. The third, higher inflation also makes our national debt much easier to pay off to the point where the longer you don't pay it off, the cheaper it becomes. Right now, with interest rates near zero, the national debt almost costs nothing to keep on the books. And if inflation is two to three percent every single year, it's almost like the national debt is being reduced by two to three percent every single year just because of inflation.

It's kind of like the example I just mentioned, being able to borrow 27 trillion dollars in the year 2020 and effectively paying it off 100 years from now with the value of 1.8 trillion dollars, even though we've spent and borrowed 27 trillion dollars today. So overall, the winners here are the people who have investments, who take out well-calculated fixed-rate, low-interest rate loans and then hold long-term. In this scenario, low interest rates and high inflation could potentially boost up your net worth and help make you more money.

But I'll be honest, it's not all rainbows and sunshine, and there will be people who will lose money alongside with this. And here's the bad news. The first person who's going to lose in this is the person who's not investing their money, plain and simple. If you haven't been investing your money this year, your money's already lost value and purchasing power compared to where we were in the beginning of the year, at least with stocks and asset prices. What would have cost you about a hundred dollars in the beginning of January is now costing you about 120 today. Or in some cases, it's costing you triple the price of what it was in January.

That's not good for anyone who's sitting on the sidelines just waiting to see what happened or hoping that stock prices would end up going down because so far it's only cost you more money. Now you're going to have to pay way more money to buy the same S&P 500 as it would have cost you back in January. The reality is that the people who are not investing their money right now are losing value compared to what their money could have bought.

And remember, I'm not saying there can't be another crash or that this is not to say that the stock market is only going to be going up—who knows? But long term, I would bet 20 years from now prices are going to be significantly higher than they are today. The second group of people who are just saving money are going to lose in this situation because the Fed is encouraging more inflation. That means your savings are going to be worth a little bit less each and every year that you don't either spend or invest.

Of course, don't get the wrong idea because you should be keeping some cash on the sidelines for an emergency fund or just for your normal expenses. But you should always aim to keep that money in a high-interest savings account or just some account that pays you even a marginal amount of interest, so you don't lose as much money. And you really shouldn't keep any more than about a six to eight-month emergency fund in most situations.

So basically, if all you're doing is saving money without investing any of it, you're gonna have a bad time. That means the best course of action right now is just this one: don't keep too much cash on hand without having a short-term purpose for the money. Like, don't keep tens of thousands of dollars just sitting in a checking account somewhere with no plan or reason behind it, just waiting to see how things play out. It's one thing if that's your emergency fund, fine, that's okay.

But if you're keeping more than you need to there for way too long, it's just gonna end up losing value. Second, you should always just keep investing your money and then hold. I'll be the first to admit, what we've been seeing right now is absolutely crazy, and people are investing everything they can into the markets with the expectation that there will be inflation. But just keep in mind, as of right now, we're not seeing that much inflation, and the only prices that have been going up are asset prices like stocks, gold, and real estate because everyone's been buying into them.

Sure, some businesses have absolutely been hit very hard, but tech so far has been unstoppable. That means you should only be investing money that you're not going to need for the next 10 or 20 years because anything else that happens in the short term is completely unpredictable. The last thing you want to do is buy in because you're afraid of missing out, and then the market ends up going down, and you panic sell. And then, as soon as you sell, the market ends up going back up again, and now you've lost money.

Third, it's also just as equally important to stay employed, continue to learn and expand your skills, and negotiate a competitive salary as often as you can so you make sure you're fairly compensated for your work. That way, you could have a consistent income, you'll save money, and you'll have more money left over to save and invest. As far as what I think about this, for whatever that's worth, I think it can be a good measure depending on how it's utilized.

I think by allowing the Fed some years where inflation can exceed two percent would help them steer the economy in the right direction instead of trying to jerk it around year by year, trying to get as close to two percent as possible. As long as inflation is somewhat reasonable and predictable year by year, that's all that really matters in the grand scheme of things.

Although still, no one knows what the full outcome of this is going to be or how much inflation is really going to ramp up once the economy fully reopens. Some people also argue that this is just a way for the Fed to let inflation go crazy because they can't possibly lower rates any further, and other people argue that this move is just to boost up stock prices. Jim Cramer even said on CNBC that this new policy was incredible for investors, noting that this would likely help with the markets rise even further.

But who knows? I'm not an economist, and really all we could do is stick with their long-term strategies: don't save too much money without investing some of it, and smash that like button for the YouTube algorithm. I wouldn't be too concerned about this, but this should be a good reminder that you should never keep too much cash on the sidelines without investing it. And anytime you do invest it, just invest with the long-term outlook—a buy and hold.

So with that said, you guys, thank you so much for watching. I really appreciate it. Make sure to subscribe, hit the like button and notification bell. Also, feel free to add me on Instagram; I post it pretty much daily. So if you want to be a part of it there, feel free to add me there as in the second channel, the Graham Stephan Show. I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that.

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So anyway, with that said, thank you so much for watching! Let me know which two free stocks you get. Thank you so much, and until next time!