What happens when the central bank music stops. From Charles Hugh Smith at oftwominds.com:
The equity, real estate and bond markets all rode the coattails of the Fed’s ZIRP and easy-money liqudiity tsunami for the past 13 years. As those subside, what’s left to drive assets higher?
No wonder the market is skittish:
1. Every time the Federal Reserve began to taper quantitative easing / open spigot of liquidity over the past decade, reduce its balance sheet or raise rates from near-zero, the market plummeted (“taper tantrum”) and the Fed stopped tightening and returned to easy-money expansion.
2. Now the Fed is boxed in by inflation–it can’t continue the bubblicious easy-money policies, nor does it have any room left to lower rates due to its pinning interest rates to near-zero for years.
3. So market participants (a.k.a. punters) are nervously wondering: can the U.S. economy and the Fed’s asset bubbles survive higher rates and the spigot of liquidity being turned off?
4. The market is also wondering if the economy can survive the pricking of the “everything” asset bubbles in stocks, bonds, real estate, etc. as interest rates rise and liquidity is withdrawn. What’s left of “growth” once the top 10% no longer see their wealth expand every month like clockwork?
