You can’t deny an economic collapse. We are about to see the greatest stock crash of our lifetimes
I recently read a good article in Barron’s by Randall W. Forsyth called “Deus ex Machina 2.0: Is the Fed Trying to Take Human Nature Out of the Credit Cycle?”
It was particularly interesting in light of the Bank for International Settlements’ warning that central banks are stoking financial bubbles that will burst, creating an even larger financial crisis… and that they should reverse their endless stimulus policies sooner rather than later.
Music to my ears: Were they singing my song or what?!
Of course, central bankers like the Fed‘s Yellen had to come out and counter this sober view; the same view I’m trying to share with you… of an insane world where there’s unlimited use of financial drugs to keep history’s greatest global debt and financial asset bubble going forever.
And it really is insane!
How could any intelligent economist argue, with a straight face, no less, that taking more and more financial drugs to keep the high going is fiscally responsible?
Yet that is exactly what Yellen did (and continues to do)!
She quoted Greenspan: “Because there’s no way to identify a bubble until it bursts, it’s better to clean up the damage when it does pop than to try to deflate it in advance.”
This coming from the so-called “free-market capitalist” who stoked the technology and housing bubbles into the turn of the century. Every time the economy would slow, he increased the “crack” drug of easy monetary policy in the system, pushing interest rates lower and creating greater speculation.
At the end of June, Yellen stated that she hoped the Fed’s low-interest-rate policy would not create excess speculation.
Are you kidding me?!
You let traders lever up 30 to 50 times, with near zero, short-term money costs, and you hope there’ll be no speculation?! Do you think Wall Street is full of boy scouts?!
An Economic Collapse is Unavoidable
You mean that housing prices more than doubling in six years, with no appreciable increase in real incomes, and with mortgage lending advancing from 3.3 times pre-tax income to 9.2 times tax income, all stoked by record-low interest rates, was not identifiable as a bubble?!
Was an advance in the Nasdaq from 800 to 5,050 in just five years not a sign of a bubble?
How about the recent three-times advance in the S&P 500 in a totally artificially-stimulated economy that can only grow at 2% (on average), despite $2 trillion a year in fiscal and monetary stimulus?
Or how about China’s stock market going up 6.6 times in two years…
Or the Shanghai real estate market going up 6.63 times since early 2000?
These are not identifiable bubbles in the Fed’s eyes?!
This apparent blindness sends a very clear message: The Fed’s real intention is to take over the free-market capitalist system and program the economy to grow at 3% a year with 1% to 2% inflation…
To annihilate the very dynamics of success and failure that created the greatest wealth in human history (a dynamic that is now spreading to emerging countries)…
And, of course, to never have recessions or downturns or bank failures ever again.
Oh, like that’s realistic!
These people know nothing about the free-market system and its dynamics for creating wealth.
In fact, it’s a horrible crime that these people are in charge.
These central bankers shouldn’t even be allowed to babysit our children, never mind control our economic policies!
Thankfully, I’m not alone in my views of the Fed’s incompetence and unspoken intentions. There’s also David Stockman, who is our keynote speaker at our Irrational Economics Summit this year.
He says it best in the subtitle of his 2013 book The Great Deformation: The Corruption of Capitalism in America.
And there’s Forsyth, who seems to be alone in his chosen profession, being one of those scarce purveyors of the truth in the financial media.
Unfortunately, no matter what anyone says, this endless stimulus and denial can’t last, and when it ends, the repercussions will be devastating.
In fact, I’m only getting more bearish as the stock market continues to edge up in the face of a 2.9% decline in GDP (in the first quarter), slowing earnings growth, and the Middle East turning into an outright Shia-Sunni religious war.
Beginning this year, we’ll see a sharp drop coming into early 2015 (I’m taking Dow 10,000 to 11,000)… then another slide into late 2016 or early 2017 (when the Dow will sink as low as 5,000 to 6,000)… and finally a third fall into early 2020 or so (with the Dow slamming into the 3,300 to 3,800 mark).
I know that the stock market looks invulnerable at this point. But that’s exactly when you should be the most afraid… and cautious. This is precisely how bubbles suck in even the skeptics before they burst.
And bubbles don’t correct. They burst violently. My article on the “10 Rules About Bubbles You’re Going to Want to Know” will explain the details. Remember the Nasdaq? It lost 40% in just the first crash in 2000 before it bottomed down 80% in late 2002.
Time to prepare.
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