The central bank is the financial authority in any nation. The bank regulates inflation by controlling the money supply in the nation’s economy. It does this by selling or buying bonds and share securities from its citizens. In America, just like other nations, the bank sells securities to the market when it needs to increase interest rates and decrease the money supply among the citizens. Quantitative easing is the opposite of this scenario where the central bank increases the money supply by buying securities in exchange for cash.
In February, Shervin Pishevar went on one of the longest Tweet storms ever seen, when he wrote 50 tweets within 21 hours. Each tweet contained a unique insight on various aspects of the USA financial market sector.
One of the tweets posits that the use of quantitative easing was fast becoming obsolete. Shervin Pishevar criticized the use of this tool to stabilize the economy. In support of his statement, he went further to describe how quantitative easing had lost its edge in stabilizing the economy, particularly in USA. “The bull run of bonds is over,” Shervin Pishevar wrote.
Shervin Pishevar went further to warn individuals against falling victim to this tool. To defend his statements, he identified inflation as the reason quantitative easing is no longer plausible. Quantitative easing has been an effective tool over the years but inflation keeps rising to unprecedented levels despite its use.
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— Shervin Pishevar (@shervin) July 13, 2018
The crash of the stock markets is another reason why Shervin Pishevar thinks quantitative easing is losing its power to control inflation. The stock market is volatile because of the cutthroat competition that leading tech firms encounter. Moreover, unemployment is a rising phenomenon across the globe. This means people no longer have access to loans that empower quantitative easing to reduce inflation.
Quantitative easing has a myriad of drawbacks because it weakens the country’s currency and eventually weakens the economy. Given his business background, Shervin Pishevar’s insights are worth every investor’s consideration. He is the founder of Sherpa capital and holds a considerable stake in global tech giants such as Airbnb, Uber, Didi, and Wag, among others.
Shervin Pishevar’s 21 hour tweet rant definitely created some buzz on social media. He had some dark predictions for the future of the economy in the United States. Should these predictions be taken seriously? Well, it seems like Shervin Pishevar has a knack for predicting the future. Back in 2008, he anticipated that Facebook would go through an identity crisis, which it did.
Shervin Pishevar recently announced his resignation from Sherpa Capital. This is a venture fund that he help co-found and used to invest in companies like Uber, Airbnb, and Munchery. In addition to the success he has had as an entrepreneur and investor, he has received different awards and recognition from important organizations, including the US government. In fact, in the year 2015, he was appointed to the J. William Fulbright Foreign Scholarship Board by former Pres. Barack Obama.
His twitter rant started in response to one of the most dramatic dives the stock market has taken in recent years. The dive was obvious to everyone, but Shervin Pishevar pointed out that it would continue to go down in the months ahead. He even said that quantitative easing, which the government often uses to correct the stock market after it tanks, should not be trusted to be an effective tool.
In his twitter rant, he said that governmental and financial institutions are also in trouble. He said that they are facing irrelevance and would go through a shift that is only seen once every 1,000 years. While he has dark things to say about giant companies, governmental institutions, financial institutions, and the stock market, he does feel that small startups will have a good opportunity in the days ahead, particularly because of digital currency and new ways to raise funds. He said that digital currency is the ultimate app.
As a person who got his start in Silicon Valley, Shervin Pishevar is in a good position to discuss its future. He feels that the exclusivity that once existed in the area is just no longer there. At one time, the stronghold of ideas and talents came from there, but now individuals all around the world are becoming entrepreneurs. This is good on a global scale but not for the US economy.
America is heading into uncharted territory as far as its monetary and fiscal policies are concerned. The country is currently burdened with far greater debt levels, as a percentage of GDP, than it has ever had at any point in its existence. Furthermore, the U.S. government continues to face increasing costs related to its ever-expanding list of mandatory entitlement expenditures.
At the same time, the Federal Reserve has embarked on so-called open market operations at levels heretofore unseen. Shervin Pishevar, one of Silicon Valley’s most accomplished entrepreneurs, has recently taken to Twitter, warning about some of the dire implications of the country’s irresponsible spending, borrowing and money-printing habits.
One of the things that Shervin Pishevar is particularly concerned with is the high level of asset inflation that has been seen across many different markets. Shervin Pishevar says that when a true market correction finally begins, it is likely that investors will have nowhere to take shelter from the economic storm.
Normally, Shervin Pishevar argues, investors in overvalued equity markets can take shelter in bonds or even liquidate all of their holdings into cash. But Pishevar warns that the Fed’s ongoing and aggressive quantitative easing programs have left bonds and cash as options that will likely prove extremely unattractive over the long term. Pishevar explains that bond yields are currently badly depressed, making the current prospective returns from bond investment extremely low. If inflation ramps up in the future, an eventuality that Pishevar believes is likely, the ultra-low-interest bonds of today could face almost complete losses of their value.
At the same time, Pishevar believes that the woefully irresponsible fiscal policies of the U.S. government will inextricably lead to severe inflation. This will make holding cash not only a bad option, but possibly the worst one. Pishevar says that in such an environment, the only thing that investors can really do is look for more stable investment opportunities abroad. The financial storm that is currently brewing in the United States simply will not offer them any safe haven because its intensity will be unprecedented, and its coverage of every asset class will be absolute.