Tom Bilyeu: “My Biggest Fear Is a Reverse Market Crash”

Many investors expect some kind of market crisis. Interest rates soared to a 15-year high, and have now stayed there for over a year. That higher cost to borrow has led to some struggling companies file for bankruptcy.

The last time interest rates were this high, the housing bubble was being fueled. Loan officers found creative ways to ensure that even those with zero income could buy a home. The end result? A massive crash.

Over the subsequent decade, ultra-low interest rates made homeownership more affordable. Lending standards were tighter for a home. But for consumer and business borrowing, rates were near historic lows.

And low interest rates meant that savers were punished, earning little, if any, interest on cash in the bank. The result is now rising total debt, at a time when personal savings have been depleted.

Thanks to this trend, consumers have effectively leveraged up their balance sheet. As people run out of money, they will start to cut back on spending. Some may even look to sell their homes or otherwise free up cash.

While interest rates are set to come down, it’s now clear that economic data may start to decline at a faster pace. Historically, a recession tends to start within a year of a final interest rate hike, about where markets are now.

Given the current climate, however, markets may first deliver one last major push higher to end the year.

To listen to the full explanation on the economy, click here.