How credit contractions work…

• Central banks control how much money and credit is in the system.
• The amount of money and credit in the system determines the prices of every single asset, both real and financial.
• The more money and credit that is in the system, the higher prices assets will have, because most of the time, people buy financial assets with debt (directly or indirectly), and when you buy something, the price goes up.
• The less money and credit in the system, the lower prices assets will have, because when people sell something, the price goes down.
• When central banks increase interest rates, it makes credit/debt more expensive, therefore people will borrow less, buy less, lowering asset prices.
• There is about $90 trillion dollars in credit/debt in the United States, but only about $6 trillion in cash. The world has approximate ratios.
• Cash and productivity do not impact economic cycles like credit/debt does.
• What we're seeing now is a credit contraction: where credit contracts because the central bank is increasing interest rates making it more expensive so people use less of it.
• Do not buy financial assets when central banks continually make credit more expensive. Because you can get the asset much cheaper whenever rates stop rising.

Stay frosty people…and stay solvent.