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Tuesday, September 01, 2015

Wall Street Sags Again As Faith In Fed Easy Money Lingers

by JASmius

We are in what I like to call the "hyperventilation" phase of the coming stock market and economic implosion.  It's analogous to a heart condition: The more out of shape you become, the less physical exertion is required to cause you to have to breath heavily.  Eventually your heart deteriorates to the point where you're breathing hard just sitting still.  Ultimately you will be unable to breath fast enough to take in sufficient oxygen to even keep you alive.  Then you pass out, collapse, go into cardiac arrest, and die.

Right now the American, and therefore the global, economy is somewhere in that final phase, and its heavy breathing - or what economists refer to as "market volatility" - is getting steadily worse:

U.S. stocks joined a worldwide selloff, after equities’ worst month in more than three years, amid continuing concerns that China’s slowdown will weigh on the global economy.

This is what is by far the most alarming factor about the current global economic situation.  The fact that everything is hanging on the economic performance of what is by definition a fake "market" that the Chinese communist government can and does artificially manipulate at will in order to, in turn, manipulate the economies of the West is a fatal weakness for the latter quite apart from all the U.S. debt Beijing holds and could "cash in" whenever its suits them.  Makes one wonder how we could possibly have gotten ourselves into such a vulnerable position vis-a-vie a country that has never stopped being our enemy.

Actually, that's a trick question; it's the same factor that has made China so fascinating to us going back a century before Mao Tse Tung was still a peasant guerrilla leader: the shining chimera of a market a billion-plus industrious workers and consumers-strong.  A dream that has never really gone away, and which is proving to be our achilles heel.

The Standard & Poor’s 500 Index slid 1.6% to 1,941.17 at 9:32 a.m. in New York, following the benchmark’s biggest monthly slide since May 2012. Equities dropped in Asia, with the Shanghai Composite Index slumping as much as 4.8%, after manufacturing reports pointed to a deepening Chinese economic slowdown.

“Markets may have overemphasized China’s impact, but markets are also in relatively bad shape and we’re getting more negative technical signals,” said Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich. “It’s a close call for the Fed and as long as markets are in turbulence, I don’t think it will raise rates. If the markets remain too turbulent, they will postpone to October.”

Of course they won't raise rates.  Subterranean interest rates, Janet Yellen's printing presses, and BLS books-cooking are the only things that have kept the true dire condition of the U.S. economy - the Second Great Depression - concealed from the American public for this long.  The moment the Fed pulled the trigger on a rate hike, no matter how small, that would be the signal that would almost immediately unravel the entire illusion.  Commercial interest rates would shoot up, the federal deficit and debt along with it, the Dow would plunge into freefall, "official" GDP would crash, etc.

Barack Obama dares not set that crisis in motion until the politically opportune moment for his coup de tat.   That's when he will do so, and not before.

Meanwhile, one analyst still thinks that U.S. currency devaluation - i.e. another "quantitative easing" spree - is still a viable Fed "remedy":

The Federal Reserve will probably "save the market one more time" by artificially printing money, but the next big rally will be the last before an economic day of reckoning arrives, international investor Jim Rogers told Newsmax TV.

The nation’s central bank will "buy more bonds, they'll do something and then we'll have another big rally but that's going to be the last rally," the chairman of Rogers Holdings told Newsmax Prime.

"Maybe they can save the market one more time, but the world is starting to give up on all this artificial money printing," he said.

I think Rogers is an optimist.  The global and U.S. economies are still in the waste extractor despite seven years of this monetary insanity.  Even with the most powerful narcotics, eventually the law of diminishing returns kicks in.  I don't think another printing binge would save anything or pull the Dow out of its looming swan dive.  That card has already been thoroughly played out.

And again, why would the White House want to "save the market" again if they need it to collapse next year?  If the thinking is strictly short term, they're running a little short on time, it seems to me.

UPDATE: The Dow dropped another 470 points today.  Better get out your parachutes, the landing is going to be a rough one.

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