Black Monday: No matter the spin, markets built on Fed policy instead of economy

In the past we have written about, and shown the charts of what has happened in the stock markets since 2008 after the Fed began their policies of near zero interest rates, and massive quantitative easing.  In fact, it was a case of simple analysis to realize that the rise and fall of the equity markets over the past seven years have been intrinsically tied to infusions of new money printing, where stocks always declined when the spigots were turned off by the central bank.

stocks and qe

However, massive imbalances within a money supply will naturally create bubbles in one or more equity markets, where even the worst stocks will be over-valued, and where relative ‘shacks’ in a market such as housing will sell for multiples above their real values.

The reasons behind this are simple… to protect against hyperinflation during monetary expansion the central bank must ensure that the velocity of money is kept limited to the paper markets and not allowed to trickle down into the general economy where a saturation of cheap money would cause prices to rise too fast on material goods, and destroy the meaning of value for many of the items consumers purchase.

Which leads us to now to the day of reckoning, or what happens in every instance of monetary expansion.  Over the past three weeks, equity markets around the world have been accelerating downward based on a number of factors.  First, the ability of new debt to increase GDP has now gone beyond the point of diminishing returns and would require an ever expanding rate of money printing just to squeeze out a single dollar of nominal growth.  Thus beginning in China, then traversing over into Europe and the U.S. during a daily market cycle, market declines and bad economic data are showing the cracks in the global financial system which are in part the same fundamental flaws that led to the 2008 crash.

dow chart

Liquidity.  Both in the requirements of current assets to hold their inflated levels and in the fact that there are few assets left for central bank debt to purchase and keep the artificial growth going.

Secondly, the stock markets are run by computer algorithms which now do 75-80% of all trades worldwide in equities, and are the catalyst for nearly every directional swing in the markets.  Thus when one region of the global system moves up or down, the other regional markets almost always follow suit.  And with China now beyond bear territory in their markets, and unable to stem the flow of their ‘blood in the streets’, it leaves Europe, the U.S., and the rest of Asia with little choice but to create their own collapse scenario until intervention is imposed.

And that intervention is well under way.  China has limited short selling and even the divesting of stocks by large shareholders, and the U.S. circuit breakers today have halted selling and buying for numerous stocks several times in just the first few hours while the PPT works to use this slowdown in trading to purchase key sectors and etf’s to pump the markets back up.

But either way, and as much as the talking heads try to spin the story to that of being a ‘natural correction’, the truth of the matter is the entire foundation of the markets are built on sinking sand, and are finding that there is no solid economy to backstop the paper markets which have been relatively immune to this for the past four years.  So while everyone loves to create fictitious exaggerations of how this is the ‘big one’, the reality is this is only the beginning, and will soon lead to the unveiling of how rotten the entire core of the global economy is, with the Fed and other central banks forced to go where no policy makers have gone before.

Kenneth Schortgen Jr is a writer for Secretsofthefed.comExaminer.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.

HERE IS A LIST OF EVERY SINGLE TIME OBAMA COMMITTED AN IMPEACHABLE OFFENSE THAT DEMS & MEDIA COVERED UP “Impeach!” It’s been more than eight years since Democrats uttered that word – long enough for anyone to wonder if it was still in their vocabulary, considering the deafening silence through the dozens of serious scandals during President Obama’s administration – but now that President Trump is the man in the White House, it’s back with a vengeance. . . Democrats everywhere are wildly slinging the “I” word, hoping to nail Trump for high crimes and misdemeanors after the New York Times claimed a memo written by former FBI Director James Comey said the president urged him to end the federal investigation into former national security adviser Michael Flynn. . . Some members of Congress are getting in on the action. They include Reps. Maxine Water, D-Calif., and Al Green, D-Texas. Even a Republican, Rep. Justin Amash, claimed Wednesday there are grounds to impeach President Trump. House Oversign Committee Chair Rep. Jason Chaffetz, R-Utah, asked for the alleged Comey memo and other documents. Chaffetz tweeted that he is prepared to subpoena the information. And Sen. John McCain, R-Ariz., invoked “Watergate.” . . Now the Democratic Party is reportedly poll testing impeachment as a 2018 election issue. More than 1 million people signed a petition calling on Congress to impeach Trump. . . Wasting no time Wednesday, the mainstream media sprang into action, enthusiastically echoing the left’s impeachment calls. MSNBC launched a Watergate ad implying Trump is America’s new Richard Nixon. . . “Watergate. We know its name because there were reporters who never stopped asking questions,” says MSNBC host Chris Hayes, who hinted that Trump is next on the impeachment chopping block. “Now, who knows where the questions will take us. But I know this: I’m not going to stop asking them.” . . Meanwhile, some overzealous members of the left plastered fliers around Washington, D.C., demanding all White House staffers resign Wednesday. . . The posters read: “If you work for this White House you are complicit in hate-mongering, lies, corrupt taking of Americans’ tax money via self-dealing and emoluments, and quite possibly federal crimes and treason. Also, any wars will be on your soul. … Resign now.” . . But constitutional scholar Jonathan Turley, who voted for President Obama, warned “impeachment” enthusiasts not to get ahead of themselves with President Trump. Why? . . At this time, there’s no evidence Trump actually committed a crime. . . “The criminal code demands more than what Comey reportedly describes in his memo,” Turley wrote in a May 17 opinion piece posted at the Hill. Turley explained: . . For the first time, the Comey memo pushes the litany of controversies surrounding Trump into the scope of the United States criminal code. . . However, if this is food for obstruction of justice, it is still an awfully thin soup. Some commentators seem to be alleging criminal conduct in office or calling for impeachment before Trump completed the words of his inaugural oath of office. Not surprising, within minutes of the New York Times report, the response was a chorus of breathless “gotcha” announcements. But this memo is neither the Pentagon Papers nor the Watergate tapes. Indeed, it raises as many questions for Comey as it does Trump in terms of the alleged underlying conduct. . . A good place to start would be with the federal law, specifically 18 U.S.C. 1503. The criminal code demands more than what Comey reportedly describes in his memo. There are dozens of different variations of obstruction charges ranging from threatening witnesses to influencing jurors. None would fit this case. That leaves the omnibus provision on attempts to interfere with the “due administration of justice.” . . However, that still leaves the need to show that the effort was to influence “corruptly” when Trump could say that he did little but express concern for a longtime associate. The term “corruptly” is actually defined differently under the various obstruction provisions, but it often involves a showing that someone acted “with the intent to secure an unlawful benefit for oneself or another.” Encouraging leniency or advocating for an associate is improper but not necessarily seeking an unlawful benefit for him. . . -Obama’s Iran nuke deal -Obama knew about Hillary’s private email server -Obama IRS targets conservatives -Obama’s DOJ spies on AP reporters -Obamacare & Obama’s false promises -Illegal-alien amnesty by executive order -Benghazi-gate -Operation Fast & Furious -5 Taliban leaders for Bergdahl -Extortion 17 -‘Recess ‘ appointments – when Senate was in session -Appointment of ‘czars’ without Senate approval -Suing Arizona for enforcing federal law -Refusal to defend Defense of Marriage Act -Illegally conducting war against Libya -NSA: Spying on Americans -Muslim Brotherhood ties -Miriam Carey -Birth certificate -Executive orders -Solyndra and the lost $535 million -Egypt -Cap & Trade: When in doubt, bypass Congress -Refusal to prosecute New Black Panthers -Obama’s U.S. citizen ‘hit list’