The beginning of a new week on the NYSXE yesterday, people had their hopes up for the possibility of the markets last week being only a minor bear, however after opening up the markets we saw the crash propel even more furiously than before. It is happening world-wide, not only in the NYSXE. The nasdaq compsosite dropped from 5,000 to 4,300 in 4 days. The shanghai composite dropped from 3800 to 3200 in the same time, and the ESTX 50 dropped from 3450 to 3000 in the same 4 days. Analysts have been attributing it to the fact that there was a recent yuan depreciation to the cause of the current bear markets. However, I would argue that there is much more to it and not only is the yuan depreciation not necessarily important, the federal reserve banking system will use it as an excuse to continue on the 0% interest rate path towards destruction
The fed chairwoman, Janet Yellen, signaled that we should expect a rate hike in September of this year, however with the new situation with the global markets crashing analysts are now suggesting that we will not receive a rate hike. “While a falling yuan would contribute to dollar strength—potentially giving the Fed pause—” he said, how can the fed introduce rate hikes? The suggestion that the rate hikes are going to be even close to enough to offshoot the years of free money printing is absurd in the first place. We are talking around a .01 or .02 percent increase, though we have been bamboozled in round after round of quantitative easing for over 4 years now. After which, we now see where the economy is.
After quantitative easing we have started to witness a shrinking stock market, which is due to the nature of quantitative easing. Considering the fed can now buy up all ill-gotten assets, many people are being weary of entering into certain markets. The result has been a decline in U.S. business dynamism. Also, we see that long term yields have been steadily declining, which means there is a lack of long term investment. Yet all of this is caused by the cheap monetary policy given by the fed.
So then, devaluing the Chinese yuan is causing investors to not invest due to market turmoil? I think not. This shows that the easy money policy within the United States, and the world, has caused a shrinking stock market, has caused a lack of entering firms, and a fall in long term investment. This is all due to the fact that nothing of value was created by Q.E. The fact that the entire policy of Q.E. is geared at leveraging failing businesses towards a national debt is a sham, and should have never occurred. Thus, the fact that this has occurred has now set into a cycle of endless Q.E. where no matter which way the fed looks, they will always need to continue with easy money. This is because when the Fed creates money, what it is initially doing is leveraging debt. Since, the fiduciary media never existed before, the central bank will create it and loan it out with massive leverage ratios. With those massive leverage ratios, it then becomes nearly impossible to reverse the lending simply because those ratios are pyramided on top of each other. When the fed goes into a “contractionary policy”, after QE, it will dismantle all the pyramided debt and cause an implosion in the banking system due to the fact that the leverage ratios were propped up by the expansion.
When enacting Q.E. the central bank set into motion that ability to buy up assets, as well as pyramid out debt even quicker. This means, now, the leverage ratios for key players will be even higher and more consolidated than prior. So, how can the Fed effectively “combat inflation”, when all of their debt is pyramided out? Simple, the fed can’t combat inflation, leaving it wide open for a dollar devaluation. After the next few rounds of QE, considering we can not afford another massive stock market crash, we can see an abandoning of the US dollar, such as Peter Schiff warns. The United States is in one giant currency bubble, and it will pop.