A Clear and Present Danger to Financial Stability

[Crewleader]

February 05, 2014

The Fed's Taper Sends Global Shares and Emerging Markets Tumbling

A Clear and Present Danger to Financial Stability


by MIKE WHITNEY

The selloff that began in May 2013, when the Fed announced its plan to scale back its asset purchases, resumed with a vengeance on Monday as global shares were slammed in heavy trading sending the Dow Jones for a 326 point-loss on the day. The proximate cause of the rout was a worse-than-expected manufacturing report and sluggish construction spending, but the underlying source of the trouble was the Fed’s decision to wind down QE which, according to Bloomberg news, “helped drive the S and P 500 up 157 percent from a 12-year low in 2009.” The Fed’s tightening has reversed the dynamic that pushed equities into the stratosphere and generated an unprecedented boom in the emerging markets. Now capital is fleeing the EMs to the safety of US Treasuries while jittery investors ditch stocks and wait to see if the storm passes or gradually gains strength.

The mood on Wall Street has turned bearish overnight as markets in Europe and Asia continue to hemorrhage led by another bloodletting on Japan’s Nikkei which has slumped by a full a 14 percent since its Dec. 30 peak. Societe Generale’s emerging market strategist, Benoit Anne, summed up the mood in a terse note to her clients saying, “There is no point spending too much time trying to pick and choose when faced with a severe market crisis like the one we are witnessing in front of our screens. Right now, sell everything.”

Markets have entered a new phase in the ongoing financial crisis, a crisis which originated on Wall Street where trillions of dollars of fraudulently-manufactured “toxic” assets were produced by a criminal bank cartel and sold to unsuspecting investors around the world. Rather than write down the losses and restructure the banking system, policymakers at the Central Bank and US Treasury opted to conceal the damage with massive bailouts, financial repression, zero rates and regular infusions of liquidity, all of which helped to hide the rot at the heart of the system. The Fed’s plan to taper has removed the veil and exposed the weakness of an undercapitalized system that has been made more unstable by 5 years of misguided policy. This is real source of the problem.

http://www.counterpunch.org/2014/02/05/a-clear-and-present-danger-to-financial-stability/

[DJ13]

1. Mom takes the candy away and the children have a fit

[RobertEarl]

2. Japan is leading the way

Japan has so many problems it is hard to believe.

The US economy, which was brought back to life via the mass transfusions of artificial money, has lead the way. Now the transfusions are coming to an end. We'll see how well the body holds up. Were I in the market, i'd be selling into cash and take a wait and see. Food production is the one thing America has going for it, so farming may be a place to invest: Carefully.

[truedelphi]

4. Or as Wanda Sykes remarked

Her long term investment strategy is by being in the "green" - but plant-based green, not paper green!

[truedelphi]

3. People in the know want

The Charter that enabled the rapacious Fed taken away, the sooner the better.

And let's get Glass Steagall reinstated while we are at it. (If it is not too late already.)