The Fed’s Hands Are Tied… Right as the Financial System Begins to Crack

By: Graham_Summers

The Fed would do well to look at Japan.

Japan’s Nikkei, after rallying over 70% since November, just collapsed 11% in less than two days. Looking at the chart, it’s pretty clear where this thing is heading: the same as the NASDAQ in 2000.

This is the problem with economic policy that focuses on pushing stocks higher: eventually the collapsing economy comes home to roost and stocks implode. We saw this in 2000 and 2008. We’re currently seeing it in Japan. And it’s only a matter of time before it his the US.

Indeed, Bernanke’s whole life work has been based on the belief that the Fed didn’t do enough during the Great Depression. So he’s opted to expand the Fed’s balance sheet to over $3 trillion and to monetize most of the US’s debt issuance via QE to battle the Financial Crisis.

Altogether, the Fed has monetized QE equal to 15% or so of the US’s GDP. Doing this has already put stocks back in a bubble and damaged the economy to no end. Marginal debt is back at record highs, housing has not bottomed, and Bernanke is still talking about a “recovery” FIVE years after the Crash. At this point based on the business cycle alone we should be in a roaring growth spurt.

QE doesn’t work. It never has. Look at Japan.

Japan has monetized an amount equal to well over 25% of its GDP via QE. And at that point its bond market began to crash. It’s not coincidence that the Fed is beginning to talk about tapering QE now that this is happening. Even a career academic can look at what’s going on in Japan and know that more QE won’t help the US.

So the Fed is essentially handcuffed at this point. Increasing QE in any way risks a Japan-bond market style rout.

Can you imagine what would happen if the financial system faces another Crisis? The Fed has already thrown everything including the kitchen sink at the system. If the system collapses now the Fed will be powerless to stop it.

Investors, take note… the financial system is sending us major warnings… If you are not already preparing for a potential market collapse, now is the time to be doing so.

I’ve been warning subscribers of my Private Wealth Advisory that we were heading for a dark period in the markets. I’ve outlined precisely how this will play out as well as which investments will profit from another bout of Deflation.

To join us…

Clicking Here Now!!!

Graham Summers

Chief Market Strategist

Good Investing!

http://gainspainscapital.com

PS. If you’re getting worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.

I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

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