With the possibility of the Federal Reserve slowing down its bond-buying, money-printing initiatives sometime next year – perhaps even as early as this year – many are contemplating the negative consequences it could have on the United States and global stock markets. After pumping so much money into the system hasn’t it become dependent on monthly injections?
The Austrian Business Cycle Theory has shown that when a central bank begins to slow down its money printing efforts, which were incited in order to create a boom in the stock market, the stock market becomes prone to a crash. Pretty much like what happened from 1921 to the Great Stock Market Crash in 1929, the 1987 drop and the 2008 economic collapse.
Robert Wenzel of the Economic Policy Journal published a piece that highlighted data from Murray N. Rothbard’s “America’s Great Depression” and the Fed and it showed the money supply slowing down prior to each of the aforementioned crashes. After rising substantially throughout 2012, it dipped dramatically in the first quarter of 2013 (as seen in the chart below).
Indeed, as Wenzel noted in his report, there are many variables to consider in the economy, but the central bank’s regulation of the market through artificially low interest rates and money manipulation are immense contributing factors to great crashes, including the inevitable upcoming one.
David Stockman, former budget director in the Reagan administration, explained earlier this year that if the Fed were to close its doors and inform markets that it has “gone fishin’” then there would be an immediate decline in markets because so many investors depend solely on stimulus money.
“The minute they lose confidence that the central bank can print our way into permanent salvation they will start selling bonds and others will sell the bonds and there will be no bid,” said Stockman. “It gets liquidated. This is all debt on debt; nobody owns the bond they borrowed 98 cents to buy.”
In the end, a large number of the economy’s ails can be attributed to actions by the Fed.
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