The next crisis will be a Crisis of Faith pertaining to the US Federal Reserve… when the market begins to realize that the Fed CANNOT backstop the entire financial system (it never could but most people hoped regardless) – and…when this happens, THEN the REAL crisis will hit and it will make 2008 look like a picnic. Bernanke has [already] admitted publicly that he’s clueless [as to] what’s going on [and this] is a MAJOR step towards the world realizing that he’s lost control. [As such,] if you’re not taking steps now to prepare for what’s coming, you need to start moving. [The REAL crisis is coming – soon! Let me explain.] Words: 1018
So says Graham Summers (www.gainspainscapital.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Summers goes on to say:
The consensus view from the mainstream financial media and 99% of fund managers is that liquidity and access to loose money from central banks will keep things afloat. Reality shows, however, that this is not to be the case… at all.
First Came Money Pumps/Bailouts of Approx. $1 Trillion
For starters, as a back of the envelope analysis, consider that in 2007 when the credit markets first jammed up, the Fed resorted to providing emergency money pumps of $30 billion or so. By June 2008, the Fed had done this 14 times to the tune of $200+ billion. Then came the $700 billion bailout in November 2008. By the end of 2008, the Fed had put in nearly $1 trillion in capital to the markets – and this did absolutely nothing to avert the market collapse.
Then Came QE 1, QE lite and QE 2 of Approx. $3 Trillion
Then came QE 1, which put another $1.25 trillion into the markets and even after QE 1 ended the Fed continued supplying the juice to the tune of $30 billion or so per month during options expiration weeks. Then we got QE lite, which resulted in another $300 billion into the markets plus QE 2 which added another $600 billion. All in all, the Fed’s supplied a minimum of $4 TRILLION into the markets since 2008…and the S&P 500 is at roughly the same level [approx. 1300 – 1325] as before the Bear Stearns collapse.
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On the surface of it, therefore, the Fed’s money spending appears to have accomplished something positive: they spent $4 trillion and the markets rallied bringing household net worth up 17% from its low in 2009. However, when you dig deeper into the specific results of the Fed’s actions it becomes clear that not only is the Fed creating a giant Ponzi scheme in the financial markets, but that we’re getting close to a breaking point.
More for Less – and Even Less
Consider that QE 1 provided $1.25 trillion in liquidity to the markets. From the date of its inception until its end, the S&P 500 rose roughly 540 points. Put another way, each $10 billion was worth 4.3 points on the S&P 500. In comparison, QE lite and QE 2 put roughly $900 billion into the market (roughly 75% of QE 1) creating a 251-point rally in the S&P 500. In this case, every $10 billion in additional capital was worth 2.7 points on the S&P 500. [As such,] $10 billion of Fed money today is worth just over half (62%) the market gains of $10 billion in Fed money back in 2009. Put another way, every new injection of $10 billion from the Fed is producing less and less results.
The End Game Cometh
If we step back and look at this plainly, we will see that reality does not in any way match the view that the Fed’s liquidity will solve the financial world’s problems. In fact, we see that each Fed move is having a smaller and smaller impact on the financial markets. Extend this idea out a bit further and you find that we will reach a point at which the Fed will no longer have any control over the financial markets and I believe that we are rapidly approaching that point. Indeed, the Fed has already hit a wall in the sense that the negative impact of its policies (inflation/ prices soaring) far outweigh any positive impact (stocks rallying).
[As I said at the beginning of this article,] the next crisis will be a Crisis of Faith pertaining to the US Federal Reserve… when the market begins to realize that the Fed CANNOT backstop the entire financial system (it never could but most people hoped regardless) – and…when this happens, THEN the REAL crisis will hit and it will make 2008 look like a picnic. Bernanke has [already] admitted publicly that he’s clueless [as to] what’s going on [and this] is a MAJOR step towards the world realizing that he’s lost control. [As such,] if you’re not taking steps now to prepare for what’s coming, you need to start moving. [The REAL crisis is coming – soon!]
- U.S. Financial System is a Shell Game, a Confidence Trick, a Ponzi Scheme, Which Will Eventually Collapse! http://www.munknee.com/2011/06/u-s-financial-system-a-shell-game-a-confidence-trick-a-ponzi-scheme-which-will-eventually-collapse/
- Telling it Like It Is: Monetary Policy, the Federal Reserve, and the National Debt Problem http://www.munknee.com/2011/06/telling-it-like-it-is-monetary-policy-the-federal-reserve-and-the-national-debt-problem/
- Another Economic Collapse and Great Depression are Coming! Here’s Why http://www.munknee.com/2011/06/another-economic-collapse-and-great-depression-are-coming-heres-why/
- “Financial Repression” May Soon Become Our Worst Nightmare! Here’s Why http://www.munknee.com/2011/06/%e2%80%9cfinancial-repression%e2%80%9d-may-soon-become-our-worst-nightmare-heres-why/
- The U.S. is Headed Towards Self-inflicted Disaster: Here’s Why http://www.munknee.com/2011/04/the-u-s-is-headed-towards-self-inflicted-disaster-heres-why/
- America’s Political Process Guarantees Another Financial Crisis! http://www.munknee.com/2011/03/america%e2%80%99s-political-process-virtually-guarantees-financial-crisis-2-0/
- Warning Signs Suggest U.S. Headed for a Complete Societal Collapse! http://www.munknee.com/2010/10/warning-signs-suggest-u-s-headed-for-a-complete-societal-collapse/
- Let’s Get Real: The U.S. is Bankrupt and the Consequences Will Be Dire! http://www.munknee.com/2010/09/lets-get-real-the-u-s-is-bankrupt-and-we-dont-even-know-it/
- U.S. Between a Rock and a Hard Place and Its Options Are – At Best – Dire! http://www.munknee.com/2010/09/u-s-between-a-rock-and-a-hard-place-and-its-options-are-at-best-dire/
- Nielson: America’s Debts are Staggering – It is Hopelessly Insolvent! http://www.munknee.com/2010/07/debt-denial-and-default-why-every-investor-needs-to-protect-their-wealth-with-precious-metals/
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.