As much as the mainstream financial media likes to pretend that the financial crisis is over, unfortunately it isn’t. In fact, what’s going to happen next will very likely make 2008 look like a joke.
There is one simple reason for this: the “Fed” safety net that pulled the markets back from the brink is gone.
As noted in an earlier piece, the Fed is not going to be able to unleash QE 3 at any point in the near future. Indeed, the Fed is going to find it harder and harder to unveil any new program as we go into the election by virtue of the fact that it’s already become a political target for candidates (Perry, Paul, and Bachmann).
Given that the financial system is now more leveraged than during the Tech Bubble, that mutual funds are more heavily invested in stocks than at any point in the last 40 years (hello redemptions), that the derivatives market has not been reined in, that the global economy is once again turning sharply downward, that the EU and European banking system are collapsing, that the US economy is now clearly in a double dip (within the confines of an ongoing DE-pression), and that China is heading into a hard landing… the fact that the Fed will not be able to do much to stop the Crisis should have everyone freaking out.
Remember, for EVERY Crisis in the last 80 years, the answer was always “the Fed will fix it.”
However, with the Second Round of the Great Crisis at our doorstep, this time around it will be CLEAR the Fed DIDN’T “fix it.” You don’t get a second collapse within three years of an allegedly one in 100-year event and come up with “yeah, the problem was fixed.”
So if you thought the first Round of the Financial Crisis was bad, wait until you see the next one. Indeed, I fully expect that what’s coming is going to be 2008 on STEROIDS. I’m talking about market crashes, civil unrest, riots, bank holidays and more.
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