The Path by Which We Got Here

The Great Recession

It wasn’t just COVID that got us down the road to ruin. Because many think we are in what looks like a post-apocalyptic world of rubble only because of COVID or because of Trump, I decided now would be a good time to summarize how predictably the Fed’s Great Recovery and Great Rewind got us here.

Now that we see the Fed has become too impotent to even risk acting, lest it prove its impotence before the entire world, let us look at how predictable every step down our road to economic ruin has been. This blog has proven that by laying out each turn before we got to it so that, when we got where we are now, we could tell how we did and how one could see it coming.

Let’s not lose site of the path many never saw

Long before COVID blew a hole in the road, our present circumstances could be seen coming, and it didn’t take some conspiracy theory of smoke-filled rooms and scheming bankers in the 1920s to plot where our course was taking us — just an understanding of ordinary human nature when coupled to predictably bad philosophy.

We’ll look just at stocks because that is where the Fed was pumping all of its mojo, and looking at anything more would needlessly complicated the picture without adding value. Stocks are where most people think the Fed still rules and always will rule, as though the Fed is omnipotent and omniscient by virtue of infinite money, not human and fallible, limited in foresight, blinded by bad philosophy and, therefore, apt to fail.

In 2017, when the Fed’s Great Rewind (quantitative tightening) took us down a new trail from its decade of quantitative easing, I said stocks would not likely take any big damage that year. I mention that now to note I’m not a permabear who is right by accident because he always says the same thing, but mostly to note how accurately the path could be seen, even the times that didn’t blow up.

In 2017, I said stocks would wait to take their first major hit until January of 2018. Why? Did I say that based on some clandestine knowledge of when the Fed’s evil scheme had plotted to jog the world of finance? No, it was because many months before that the Fed publicly stated it would double down on its initial rate of quantitative tightening in January.

I believed the initial start of QT in the fall of 2017 would not likely damage the market because it was so miniscule at only 10 billion a month in money subtraction by the Fed and because the market would be relieved that the long-feared event came and not much happened.

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