Federal Reserve Could Ignite Epic Stock Market Crash
It has been only seven years since the last big financial crisis, and greedy bankers are already risking a U.S. economic collapse and stock market crash-one that could make the Great Depression look like a walk in the park.
What should have you up at night are the conveyor belt-style credit bubble and artificially low interest rates in not only the U.S., but also Europe, China, and various other major economies. These bubbles are fed by cheap money, which is intended to create incentives for lending, but essentially sows the seeds for another and far more catastrophic economic crash.
Impending U.S Stock Market Crash
Now, monetary policy laid the foundation for a post-financial crisis recovery in two ways. This was done by increasing market liquidity and strengthening asset prices. The U.S. Federal Reserve for its part initiated a quantitative easing program which essentially increased the American central bank’s financial liabilities by about 400%, from $1.0 trillion in 2007 to $4.0 trillion in 2015. (Source: U.S. Federal Reserve, last accessed November 9, 2015.)
If that sounds scary, you haven’t seen anything yet.
The rest of the world could only look on as the Federal Reserve went on a printing spree, creating cash with which to purchase junk bonds from tanking financial institutions, which then led to a stock market surge. So strong was this policy, in fact, that other nations and associations moved to replicate the success of the new U.S. economic strategy. Both Russia and China, as well as the European central bank, moved to increase their own money supply.
But overly frivolous cash printing leads to its own set of problems, because it’s not a sustainable policy in the long-term sense. A central bank should obviously do as it must in the wake of an economic collapse and stock market crash, but there comes a point when the economy must be left to recover on its terms.
Therein lays the big problem facing the global economy, which in fact threatens to bring about another, much bigger stock market collapse.
By providing cheap money to zap the economy into life, have we essentially made a real economic recovery impossible? More importantly, can the U.S. economy even function anymore without access to huge amounts of near-free credit?
There’s no easy way to put this, but things aren’t shaping up well this year. And you can bet that it’s about to get a whole lot worse. If you’re a smart investor, you’re already worried about the economy and recognize the signs of a coming financial collapse. But what can an ordinary, hardworking person like yourself do to avoid losing their shirt when the collective of greedy bankers comes knocking at your door to collect its debt?
Could a Second Global Economic Collapse Be on the Horizon?
Many of the world’s biggest banks have now basically painted themselves into a corner, and the outcome won’t be pretty by any stretch of the imagination.
But don’t simply take my word for it, because some of the world’s foremost economic minds have been warning of an impending financial market crash. While the socialist-minded elite who run our banks are content to ignore these dire warnings, an increasing number of investors and analysts alike have begun to see the cracks appearing in our financial system.
Carl Icahn, legendary billionaire investor, released a serious report back in September, where he put the U.S. Federal Reserve and its blatantly irresponsible policies square in his sights. (Source: “Danger Ahead, A Message From Carl Icahn,” Carl Icahn, last accessed November 9, 2015.)
Now, it should go without saying that when Icahn discusses the economy, wise people listen. Icahn’s warnings highlight a growing and highly disturbing economic reality which is getting harder to ignore. Our current financial system is dysfunctional and the stock market is now essentially running on hot air. If we don’t take steps to fix the above-mentioned problems, says the billionaire, then what other conclusion can there be to this ongoing drama than a total U.S. stock market crash and possible global economic collapse?
Stock Market Crash in 2016? It’s Possible
Now, the European Union was a bit late to the quantitative easing party, and took years longer to start printing more euros freely. No one is even sure exactly how many sovereign debt crises Greece has already been through, but the ECB increased its monthly bond buying program from $14.0 billion to $64.5 billion. (Source: “Europe’s QE Quandary: Why the ECB is Finally Buying Bonds,” Bloomberg, June 18, 2015.) For anyone who believes that country’s particular troubles are over or will not infect other members of the eurozone, they’re either fooling themselves or are bankers making money off people’s ignorance.
China’s ongoing stock market crisis and possible economic collapse is the first major crack in the global financial system. If the world’s second-biggest economy begins to head south in any significant way, you can bet that we will be facing a U.S. economic crash unseen since the Great Depression.
It doesn’t take an MBA to figure out that we’re heading for a bigger and far more destructive economic collapse if something isn’t done to avert this entire greedy process.
China was at one point the Next Big Thing, the source of what appeared to be a near-limitless hunger for commodities and services which fuelled the economies of other countries. But this is no longer the case, and if I asked you to guess what brought about this crisis in the Middle Kingdom, I bet you would now be able to give the correct answer.
It was cheap money, hot off the presses.
China did a remarkable job of stabilizing its economy following the global financial crash in 2008-2009 but this came at the expense of long-term strength. Beijing keeps an extremely tight hold over the Chinese financial system, and moved quickly to stave off any financial bleeding that resulted from toxic credit. The ensuing strategy mirrored that of the U.S. Federal Reserve; continue printing money to keep the proverbial wolf from the door, and do anything to prop up the credit-driven stock market bulls. (Source: “Figuring Out China’s Monetary Policy Just Got Trickier”, Bloomberg, October 26, 2015.)
Following the legalization of margin trading in June 2014, the Shanghai Composite Index skyrocketed upwards by 150% within one year. After margin trading was throttled back, what ensued was a sharp decline this summer, the consequences of which we are facing today.
And this could be just the beginning.
The Bottom Line
As we come ever-nearer to the end of 2015, it’s important to take stock of what unfolded this year, what got us into this situation, and how the future will look.
There’s no sugarcoating it here, because the realities of ignoring the faults in our financial system are coming back to haunt us. New Year could very well be one of reckoning, with slumping economic growth, low commodity prices, an ongoing low oil price crisis, and broken financial policies supported by greedy bankers. The smart investor recognizes a coming economic crash and financial market collapse when they see it, and knows that something big—something dangerous—is heading our way.
Here’s hoping we can pull through it better than the last Great Depression.
Stay in the loop. Follow Peter on Facebook and Twitter.