Saturday, January 9, 2016

Markets Falter - Is it China's Fault?

We have just recently noted here on the blog that if things were to go south this year that the US Fed would find itself as a potential scapegoat. With the markets opening the year in a very volatile and unstable manner, the hunt for who to blame is already beginning. 

The US mainstream media has decided that China is to blame. But former Dallas Fed President Richard Fisher says otherwise in a recent CNBC interview. Below are links to a variety of recent articles in search of who we need to blame if things do go bad in the markets and how unprepared most Americans are for a major financial crisis.


CNBC - Richard Fisher - Don't Blame China for the market sell-off

"Recent volatility and downside slippage in the equity markets has been ascribed to China and the potential for slowing global economic growth. To be sure, these are factors worth watching but they are hardly newsworthy."       . . . . . 

I voted against QE3 but the majority of the committee embraced it. One could argue — as I did — that QE3 and its predecessor rounds front-loaded the equity market. Stated differently, I believe we engineered a version of the "Wimpy philosophy": We gave stock-market investors two hamburgers today in exchange for one or none tomorrow. We pulled forward the price-reaction function of markets."

CNBC - Faber - Stocks to Fall and it's not China's Fault

"China has become a scapegoat for U.S. stock weakness, but equities will struggle to rise this year because of the American economy, widely followed bear Marc Faber said Thursday."

Bill Fleckenstein - King World News - Market is finally reflecting reality

“What I’m particularly referring to there is how well and how long the stock market managed to levitate on the back of not much more than outright monetization."

CBS News - Most Americans cannot handle a $500 emergency

"Despite the stronger economy, a lack of emergency savings that would help them weather an unexpected expense such as a health crisis or car breakdown remains a serious handicap. In fact, about 63 percent of Americans say they're unable to handle a $500 car repair or a $1,000 emergency room bill, according to a new survey from"

My added comments: I will just cut right to the chase here. If we do get a big financial crisis you can be sure that there will be a massive effort to deflect blame elsewhere, especially by those who failed to prevent the crisis. This is what matters the most when a crisis does arise. Who will the public blame?

If they blame those running the present system (the government, the central banks, etc) we can expect that we will see major changes show up in the US elections. Candidates perceived to be outside the establishment will probably benefit greatly. We can expect the US Fed to come under intense scrutiny and pressure along with other central banks.

Here is what we should watch for:

What do the IMF and the BIS do? Do they join in piling on the US Fed and put the blame there? I see articles all the time like this one that seem to be setting the stage for the Fed to take the blame in the next crisis.

If the Fed does get the blame, will this lead to the IMF stepping in as Jim Rickards has predicted at the global level to "solve the crisis"?  This is what readers here need to watch for if we do get a major crisis. The next question that will surely arise will be if the crisis was a planned event in order to shift the solution to the global level and away from national central banks?  Skeptics will certainly make this claim.

We can  be sure that most people will be confused and have no idea who is to blame when the next financial crisis arises because the finger pointing will go in every direction. We are already seeing that now even though we don't yet have a major crisis (see added note below).

Readers here though will know what to look for: 

What do the IMF and the BIS do? Who do they blame? Do they propose solving the next major financial crisis at the global level?  Will the IMF issue massive new quantities of SDR's in the process?


Added note: In this recent interview Jim Rickards was asked if we are seeing the start of a major financial crisis like 2008 as George Soros recently suggested. Jim replied that this is NOT the start of the kind of  major crisis he is forecasting

He said he now believes that the major crisis worse than 2008 he has been predicting is still "years from now."  This is an important statement on timing from Jim that I have not heard from him until this interview. It suggests he now feels that the powers that be will still be able to manage the present system for quite some time.

This is also consistent with the fact that Jim has altered his view on the Fed interest rate policy. Jim had predicted that the Fed would start easing again sometime in 2015 due to the economy starting to roll over. But as the year unfolded he acknowledged that he missed that forecast and now says the Fed will continue to raise rates until around mid 2016. He now feels it will be mid to late 2016 before the Fed changes course. 

What we can learn from this is something we have noted here on the blog repeatedly. Things tend to move more slowly than people expect (even the best analysts) and change tends to take place gradually unless a sudden major event triggers a major crisis.

No comments:

Post a Comment