The troubling truth revealed by the stock market’s nosedive (Part 1)
Fiscal Times/Anthony Mirhaydari/8-24-2015
“A recent working paper by the vice president of the St. Louis Federal Reserve Bank finds that after six years of quantitative easing that swelled the Fed’s balance sheet to $4.5 trillion, ‘casual evidence suggests that QE has been ineffective in increasing inflation’ and only seems to have boosted stock prices.
Complaints once in the realm of conspiracy theorists wearing tin foil hats are now being embraced by the Wall Street establishment. In a note to clients, Deutsche Bank analysts warned that ‘the fragility of this artificially manipulated financial system was exposed’ and that ‘the only thing preventing another financial crisis has been extraordinary central bank liquidity and general interventions from the global authorities.'”
MK note: For those who like to look a bit deeper, here’s the link to the St. Louis Fed paper referenced above. The point of all this is that QE post-2008 worked to save the financial institutions (at least some of them), but it didn’t work to save the economy. Thus, if the economy couldn’t be saved by QE previously, why would anyone believe that it could work to save the economy now. Thus, the “troubling truth” is that the Fed might be out of ammunition, an event causing a loss of faith on Wall Street and Main Street both. In some ways, that makes this breakdown closer to a 1929-style event (with the evident strong disinflationary bias in the economy) than 2008. Troubling indeed. . . . .