The Bank of Japan. Source:Â Wikipedia
Dear Diary,
We’ve been meaning to write about what hasn’t happened yet.
Not that we claim any knowledge of tomorrow or the day after. But we can look at the present. And here’s a guess about where it might lead.
The middle classes – aka “the voters†– expressed themselves last week. They have been sorely used and they know it.
The biggest money-fabricating program of all time – the Fed’s QE – has done nothing for them. Instead, it has made their lot worse.
Investment in new business output has gone down. Their meager savings produce no revenue. And “breadwinning jobs†are scarce.
For all the talk of an “improving labor market,†there is no sign of it in wages. The typical household has $5,000 less income than it had when the 21st century began.
Cold, Dark and Desperate
Meanwhile, Europe and Japan grow cold, dark and desperate. Last week, ECB chief Mario Draghi announced the central bank would buy another €1 trillion of bonds to try to light a fire under the euro-zone economy.
And Bank of Japan governor Haruhiko Kuroda got out his matches the week before, claiming potentially unlimited tinder.
Can the US resist the worldwide slump?
Our view is it’s just a matter of time before either the US economy or US stock market begins to wobble.
We could see the Dow fall 1,000 points or more… or we could hear GDP growth has gone negative… or both.
Then what?
It’s a good bet that the Yellen Fed would intervene again – hoping to keep a small problem from becoming a bigger one.
Ever since the 1930s, central bankers have learned that they will scarcely ever be criticized for overreacting. But if they sit on their hands, they will be damned to hell.
And ever since Alan Greenspan’s 1987 “put,†the Fed has backed up the stock market with whatever policy it deemed appropriate.
