For weeks now, I’ve been warning about a market collapse. Among the numerous items I pointed out were:
1) The US economy rolled over in a big way in Q1
2) The Euro Debt Crisis was spreading to Italy and Spain
3) China was showing signs of economic contraction
4) Mutual funds were overly invested in stocks
5) Historical patterns forecasting a collapse
6) Signs that the Fed had lost control of the markets
And on and on.
Meanwhile the mainstream financial media’s consensus was that everything was just fine and that at worse the “recovery” was slowing just a bit. The Euro issues were contained. The US debt issues weren’t a problem. And the Fed would be able to get the economy roaring in no time.
Well here we are and the markets are an absolute bloodbath. Other than hopes for QE 3 there really isn’t much to be bullish on. Indeed, we are very likely heading into the REAL Crisis in short order.
That Crisis will be a Crisis of Faith in the US Fed’s ability to contain and/or solve the problems of the financial system.
For 80+ years, the US financial system has operated under the belief that the Federal Reserve could handle any problem. This belief was put to the ultimate test in 2008 when the Fed faced off against the biggest Financial Crisis of the last 80 years. And the ONLY thing that kept us from the brink was the belief the Fed could fix things.
It couldn’t. And we’re all beginning to see that now.
So when the next Crisis hits it will become clear the Fed CANNOT fix these issues (it never could but most people hoped regardless). And that’s when the real collapse will begin as the entire financial structure of the markets (mutual funds, hedge funds, investment banks, etc) comes unhinged.
Remember, the issues that caused 2008 were never actually dealt with. They were merely swept under the rug. And with leverage levels now higher than they were during the Tech Bubble, a much weaker economy than then, and the US Federal Reserve itself now virtually bankrupt with garbage debt, the next Round of this Crisis will make 2008 look like a picnic.
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