"How did you go bankrupt?"
Two ways. Gradually, then suddenly.
ERNEST HEMINGWAY
The Sun Also Rises
For the last few days, I have been watching the world financial markets experience a massive downturn and listening to financial talking heads on CNBC try to explain what they don't know. As I write this, the Dow is down 11% for the year. It has given up all its gains for this year, and I expect it to go lower over the next month. So, what's really happening?
There are all sorts of explanations about how China is to blame, but this is a misdirection. The real blame is the US economy where consumers (middle and working class people) are simply out of money and have maxed out on debt. The Fed and the 1% have been on a steady train of economic rape of the lower classes ever since the collapse of 2007 as they have transferred wealth out of the pockets of the hoi polloi into the trading accounts of Wall Street speculators. The result is a colossal run up in the market while the US economy has been in the toilet.
This is the slow motion deflation of the US asset bubble. The pin prick came from the Federal Reserve jawboning the markets with an expected rate hike in September. Will they actually hike rates? The conventional wisdom is that the Fed will leave interest rates at zero and may pursue a fourth round of quantitative easing. This is because they are following a Keynesian playbook, and this is what Keynes would tell you to do.
What will happen? In the short term, I don't know. I wish the Fed would do a rate hike. I want the bubble to end. I've been in cash since the beginning of the year. I would urge all retail investors to get the hell out of this market. If the Fed does what is expected by not hiking rates, the bubble may continue. I don't know. I just know that the Federal Reserve decided to print its way out of the 2007 financial crisis and has postponed the collapse to a later day making it more severe.
The financial pundits talk about China and commodities, but the simple answer is this. Their supply has exceeded US demand. This is because US demand is broke. The Chinese devalued the yuan to try and spur exports, but it won't make any difference. Their stocks are down because our consumption is down. The US stock market does not reflect reality. The foreign markets do.
Are we headed for a massive collapse? Yes. I just can't time it. We are between now and inevitable. And am I rooting for this collapse? Absolutely. This is because the make believe economy of these speculators is killing the real economy of working people like myself. My life has been frozen for the last seven years because I refuse to become a debt slave like the rest of the middle and working class. I have been punished for saving. I have been delayed and hampered in my efforts to escape this madness and create my own economy. My patience has worn thin over the years, but if this collapse comes and spreads, I can put myself in a position to never endure this again for the rest of my life. But if my patience has become foolishness, I am ready to give up and throw in the towel. I will admit that the meek really don't inherit the earth, but the earth belongs to a blingy female with a credit card.
