The Next American Revolution could be upon us:

The Next American Revolution could be upon us.

Let me explain.

AMC, Gamestop and other stocks are set for short squeezes that are going to crash the whole stock market.

Hedge funds will get margin called by their prime brokers/banks and get them to liquidate their entire fund. They’ll go bankrupt.

The problem is if this squeeze continues, the prime brokers/banks are on the hook for liquidating their positions. Remember, shorts have unlimited downside in a squeeze.

Some of the banks may get off ok, like Goldman did during the Archegos blow-up, while others will book billion dollar losses, like Credit Suisse and Nomura.

Because of the lack of transparency in the banking system, we don’t know how big this is. If multiple prime brokers are all giving out too much leverage, which is exactly what happened with Archegos, the global financial system is going to be in turmoil AGAIN.

The banks got too risky and lent out too much leverage to hedge funds. Why? Because they were making hundreds of millions of dollars in fees. People don’t understand that the prime brokerage business for banks is one of the most profitable aspects of their business.

What happened is hedge funds and institutions committed fraud by naked short selling and manipulating the price of the market. They essentially create fake shares that don’t exist and use these shares to crash a stock price by artificially increasing the supply. The Internet found out and millions of people around the world acted together to cause the largest redistribution of wealth in the history of the market.

That’s great for the people holding AMC and Gamestop, but it’s a disaster for the American banks and larger economy.

If banks start to fail because they have too many losses on their books, then the US government is on the hook.

Depending on how crazy this situation gets, multiple banks could fail at once, thereby causing the US government to bail out the banks, AGAIN.

If this happens, America will have a revolution.

Why am I saying something this profound?

Because the system is completely rigged and those at the bottom have nothing else to fight for.

The US Federal Reserve has printed trillions of dollars in the last few years, which has predominantly gone to asset holders. Sure, people around America got stimulus checks, which made them happy in the current moment, but most of this money went into the stock market. You know who owns most of the stock market? Rich people.

As Stanley Druckenmiller put it in a recent talk at USC’s business school, he and all his rich friends had the best years of their lives financially during Covid. In the middle of a global pandemic, the rich added trillions of dollars to their wealth while the people in the middle and at the bottom got screwed.

How did they get screwed?

Inflation.

The US federal reserve printed so much money that everything got more expensive, thereby hurting people at the bottom the most.

How does it hurt people at the bottom?

Let’s use an example.

A grocery bill for a struggling family of four typically costs $100. Now that grocery bill is $120 or $140. If their wages aren’t increasing as inflation rises, which they’re likely not given that American companies already have a problem paying a liveable wage to those at the bottom, then they can’t afford to live.

Inflation ruins those at the bottom. Ask the people in Argentina, Venezuela, and countless other countries who have undergone hyperinflation.

Combine that with a market crash in which those who committed the crimes don’t suffer any consequences, and that is a recipe for disaster.

***

The world is teetering on a knife’s edge right now.

Anti-lockdown protests because of Covid. Israel is destroying Palestine while America and the rest of the world lets it happen. Rich people are making more money than ever while the poor suffer. Protests in Colombia and even an insurrection at the US Capitol.

Joe Biden and his party have a monumental crisis ahead of them that will be studied in history for generations to come.

They will face backlash from their Republican counterparts, as they’ll likely blame Joe for this market crash, even though it wasn’t entirely his fault. It’s Trump’s fault for deregulating the banks, corporate tax cuts and giving chairman Powell the ability to print endless amounts of money.

If the banks get bailed out, you can guarantee the Republicans will use that as political firepower to ruin the Democrats in the next election. They’ll blame the Democrats for inflation and convince the poor people at the bottom that the Republicans are on their side. The Republicans will use this as fodder to continue their Trumpism/populist agenda.

It could be class warfare where those at the bottom fight those at the top. This won’t just happen in America but around the world.

Yet this can be avoided. If the people who caused these issues get punished properly by suffering real consequences like being in prison the rest of their lives or having their entire wealth taken away from them, then maybe people won’t rebel.

The problem is the people at the top have become so rich by maintaining this fraud for decades so they’ll do everything they can to keep the system in place. They will lobby the hell out of all the politicians to make sure none of these regulations get passed.

Here are a few actionable changes:

·  No dark pools. Hedge funds and banks trade millions of shares on exchanges that the public can’t see so we have no idea what they’re doing behind the scenes. Evil happens in the dark and we need to bring it into the light.

·  No naked shorting. How is it legal that these market makers and institutions can create shares out of thin air? The law in America if you counterfeit money is a 20 year prison sentence if proven guilty. Why don’t these hedge funds and institutions fall under the same rules? You create fake money, you go to prison.

·  No rehypothecation to infinity. Rehypothecation means that if broker A owns a share of a stock, they can lend that share out to broker B. Broker B can lend that share to Broker C. Broker B says they own the share, even if they don’t. Then Broker C can lend it to someone else.

o   The best example is imagine you photocopied your car, sold that car 100 times and 100 different brokers said they owned your car, but there’s only one car. This is how the system is set up

·  Harsh incentives for those who break the rules. Million dollar fines aren’t enough. Brokers and banks are happy to pay those fines because it’s just the cost of doing business. Those who break the rules either need to get their licenses revoked FOREVER or go to prison.

·  Banks cannot be allowed to regulate themselves because we’ve seen how disastrous it is, not only for America but also for the entire world.

***

America is still the engine that runs the world. Once all of these things come out with the next market crash, the world will be watching carefully.

If those in power are not punished and the system isn’t reformed, revolutions will happen.

The next American Revolution could be coming.

Let’s hope it never gets there.