The problem: too much debt.
The solution: less debt.
It’s really that simple.
Yet the Fed and ECB continue to fight fire with more fire. That is, they’re fighting a private balance sheet recession (read: too much debt on the balance sheet) with a public balance sheet explosion (read: even more debt on the balance sheet).
For now, it seems to be working…
This chart shows how the S&P 500 goes higher when the Fed and ECB expand their balance sheets… and how the market drops when central banks don’t stimulate.
Don’t be fooled.
The private sector took on as much debt as it possibly could through 2007 (pushing the markets higher)… then it stopped. Now, the Fed and ECB are taking on as much debt as they possibly can so the music doesn’t stop. The problem is, eventually, central banks must stop amassing debt. They too will need to deleverage.
But today, central bank stimulus is the only game in town and it’s keeping the wheels on… for now.