Europe and Asia are facing the worst energy crisis ever because of the Iran war.
50 countries have now imposed strict austerity measures as a result.
Countries are closing universities, forcing work from home, requiring 4-day workweeks, canceling flights, turning off streetlights, prohibiting cremations, imposing curfews, and creating new holidays just so people don’t consume fuel.
Countries are also seeing rioting and fatal beatings at gas stations, as people panic over pending fuel shortages.
In other words, it is really bad!
And what makes this most interesting is that most Americans are oblivious to this.
Peter St. Onge discusses this today in this short video: The Greatest Energy Crisis in History.
Naturally, whenever I see that the world is collapsing into chaos, despair, and utter devastation, I think … “hmmm, how will this impact mortgage rates?”
And, sadly, the answer is not for the better – but probably not for the reason anyone expects.
On the one hand, higher energy prices and reduced global production will lead to shortages and drive up prices.
This will trigger inflation fears and push up rates.
But the counter-effect will be a “flight to safety” resulting from the energy-crisis recession – meaning that investors the world over will move out of stocks and into U.S. Treasuries as a safe haven until the recession blows over.
This increased demand for Treasuries will bring rates down. So, the net effect of the outside world’s woes will probably be about neutral on rates.
But here’s the unexpected wildcard: The world’s loss is America’s gain.
This is because a world desperate for energy is turning to America to satisfy its needs.
And fortunately, for the American economy, our energy spigots were turned on just in time – with the potential to turn on many more spigots.
This, in turn, could foster an economic boom across the entire economy.
And this again speaks to President Trump’s dilemma that I have discussed many times: Mr. Trump desperately wants lower rates, but booming economies lead to higher rates.
This is because the Fed jawbones about higher rates when the economy is growing, and, more importantly, because bond investors demand higher yields when they see signs of economic growth.
What will actually happen is anybody’s guess, as there are far more variables at play than anyone can imagine.
It’s very possible that the world will end up finding so many alternative energy sources because of the Iran war, that energy prices will plummet after the war ends – resulting in much lower rates.
But that will take time…
