How Long Can the Fed Keep the Syringes and Johnny Walker Locked Away? - Vivek Kaul's Diary
Free Reports

How Long Can the Fed Keep the Syringes and Johnny Walker Locked Away?

Jan 19, 2016

27

Poitou, France

It's snowing here this morning. A soft, slow snow.

Peaceful. Quiet. Like the last breath of a dying man.

We came out to the country to pack and close up. We're leaving France this week, headed back to Baltimore.

'What?' asked a friend in Paris. 'You're leaving Paris for Baltimore? That doesn't seem like a good trade.'

'Well, Baltimore is not Paris,' we replied. 'But then there's nothing quite like Baltimore.'

Everything has its charms. Fortunately, we are happy in both cities.

We are looking forward to getting back to the US...just in time to watch a market meltdown up close.

No More Juice

Friday's 391-point drop in the Dow - a nearly 2.5% fall - ended the worst 10-day start to a year in US market history.

The average stock in the S&P 1500 - which includes about 90% of all stocks listed in the US - is now down more than 26% from its high.

The standard definition of a bear market is a sustained fall of 20% or more from recent highs.


Advertisement
 Modi 2016: An Agenda For Revival
 
 The Modi Report The landslide victory of 2014 handed Modi more than just a clear mandate...It handed him immense responsibility of a nation dreaming of great progress.

From the euphoria of Achche Din the mood in India has swung to cautious disappointment and now we are in 2016...

Who will answer the question how Modi can turn this ship around and get India back on track?

Vivek Kaul has the answer and he has put it all down, along with his deepest thoughts on the challenges India faces, in our latest special report titled - Modi 2016 - An Agenda For Revival.

And the best part is that he wants to give you this special report for free!

So, don't delay...Click here to download this special report right away!
 

'Woeful earnings,' suggested MarketWatch as a cause.

Another guess: 'The stock market is freaking out over Trump and Sanders.'

Barron's was closer to the real source of the plunge: 'Without Fed's Juice, Market Suffers Withdrawal Pains.'

In 1971, phony fiat money replaced the old gold-backed dollar...and money that came 'out of nothing' replaced real savings.

At first, inflation rates rose. No one trusted the new fiat dollar. But then, incoming Fed chairman Paul Volcker showed the world that the US could manage its currency in a responsible way.

Consumer price inflation fell, along with interest rates. Debt increased. And gradually, every Middlesex village and farm has become dependent on more and more bank credit.

The dot-com bubble blew up in 2000. The mortgage finance bubble blew up in 2007.

Now, it looks as though another bubble is deflating...

Booze Binge

In 2008, the Fed cut rates all the way down to the 'zero bound' to try to keep the jig going.

But after seven years of its emergency zero-interest-rate policy (ZIRP), it became obvious that something had to be done to get back to 'normal'.

Like a long binge on booze and drugs, things were starting to get a little weird.

The juice had to go.

But we doubt that the syringes and the Johnnie Walker have been put away for long. Despite announcing a great improvement in employment, for example, there have never been so many American men without jobs.

Retail sales are falling. The transport industry - ships, trucks, rails - is in a funk. And the energy sector is in crisis...with as much as one-third of the sector's debt headed for default.

What's the matter?

The simple answer is that credit is not expanding fast enough. Lenders have become wary. Rolling over short-term financing is getting harder and harder to do.

Yields on supposedly 'risk free' Treasury bonds are going down (and prices are going up). Yields on junk bonds are going up (and prices are going down).

'Any time credit fails to increase by at least 2% a year', said credit analyst Richard Duncan at Macro Watch, 'the economy shrinks.' (We discussed Duncan's theory in greater depth in the January 4th Diary. Catch up here.)

From Boom to Bust

And what's happening now? How fast is credit increasing?

Uh-oh...

It's not increasing at all. It's falling...for the first time since 2009.

Not only is the juice no longer going into the system, it is actually going out.

Which is just what you'd expect. The phony boom created and funded with the Fed's phony money is now turning into a real bust.

China's foreign exchange reserves are falling. The ships sit idle in their ports. Orders for new trucks, new rail cars, new tankers...and yellow machines of all sorts...are hitting record lows.

The whole kit-and-caboodle creaks and groans to a halt.

And now, Bloomberg asks: 'Is it over?'

At least that question is easy to answer: No, it's not over. It has hardly even begun.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A Darkness Is Spreading Across the US August 22, 2017
Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.
Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working August 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Trump Takes a Beating August 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Which Gods Will Bring Down the US Empire? August 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?

Equitymaster requests your view! Post a comment on "How Long Can the Fed Keep the Syringes and Johnny Walker Locked Away?". Click here!

1 Responses to "How Long Can the Fed Keep the Syringes and Johnny Walker Locked Away?"

Arul Thareja

Jan 19, 2016

a lot of people seem to be iterating your bearish view now - Albert Edwards, Société Générale, says that the S&P 500 will breach 666; economists at RBS, George Soros and John Hussman, of course....

Like 
  
Equitymaster requests your view! Post a comment on "How Long Can the Fed Keep the Syringes and Johnny Walker Locked Away?". Click here!