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The Federal Reserve issued its fourth consecutive interest rate hike, raising the benchmark rate by 0.75%. Rising prices and fears of a recession have made the economy the most important issue for many Americans as they prepare to vote in the 2022 midterm elections. Just about everyone is feeling the impact of the current economic crunch, but none more so than the millennial generation. Straight Arrow News contributor Peter Zeihan says in the years to come, millennials will really feel the pain from rising interest rates and the ensuing fallout.
Excerpted from Peter’s Nov. 3 “Zeihan on Geopolitics” newsletter:
Is it a bird? A plane? Nope, just interest rates rising again.At this point, most of us know the drill with the Federal Reserve raising and lowering interest rates to play puppet master with demand. However, not all of us have adult experience with a period of high interest rates…I’m talking about millennials. And guess who is responsible for the majority of the demand across the world…millennials.While the U.S. has enough millennial-backed demand to get them through this recession, the rest of the world will quickly show how important it is to have a full quiver of monetary regulation tools at their disposal. As this economic crisis unfolds across the globe, expect plenty of whining from your favorite crypto-bros, millennials and Germans.
Past periods of low interest rates gave us the Chinese boom. Well, that’s over. Past periods gave us the Japanese boom. That’s over. Past gave us sub-prime. That’s over. In the current boom, we’re getting cryptocurrency. And this is no different from any other technological marvel that we’ve had in previous economic expansions. So you shouldn’t…you should expect high credit cost….just like everything else. The tech sector in Silicon Valley writ large is more aware of this. They’ve been a little bit around a little bit longer. But it’s no surprise to anyone in San Jose that they’re facing massive crunches. Because ultimately, tech requires a lot of young people and a lot of capital. The capital is necessary to pay the young people to do all the big think-work to operationalize the technologies, to prototype it, and then to get them out there and keep them updated. That’s all very expensive.
And if the cost of capital doubles, quadruples, or more, that becomes harder. So whether it’s a prospective technological marvel or something that’s a little bit more bread and butter, like say Twitter or Facebook or Tesla, you should expect a lot of whinging as they’re dealing with a capital environment that their business plans were not designed for. Second, the millennials. The millennials, the oldest ones, were born in 1980. Which means they have not had any experience with high interest rates and high capital cost their entire adult lives. And yes, yes, yes, we have all heard about how life for the millennials has been so hard. But now it’s going to be hard with 9% interest rates.
Give you an idea what that feels like. In the fourth quarter of last year, it was still possible to get a mortgage at a 3% rate. By the end of the first quarter of next year, it’s going to be impossible to get one with less than a 9% rate. And that six-point increase from three to nine that increases the monthly payout or the monthly payment requirements for your mortgage by 50%. And look at your mortgage. Could you afford one that is 50% higher? Now apply that across the entire millennial cadre for people who are in their first or maybe second home and think about what that does to their life choices. Think about what that does to their political decision making. We’re about to experience that en mass.
