Why the Bear of 2015 Is Different from the Bear of 2008

It’s tempting to see similarities in last week’s global stock market mini-crash and the monumental meltdown that almost took down the Global Financial System in 2008-2009. The dizzying drop invites comparison to the last Bear Market that took the S&P 500 from 1,565 in October 2007 to 667 on March 9, 2009.

But this Bear is beginning in circumstances quite different from 2007-08. Let’s list a few of the differences:

1. Then: Markets and central banks feared inflation, as WTIC oil had hit $133 per barrel in the summer of 2008.

Now: As oil tests the $40/barrel level, markets and central banks fear deflation.

2. Then: China had a relatively modest $7 trillion in total debt, considerably less than 100% of GDP.

now: China’s debt has quadrupled from $7 trillion in 2007 to $28 trillion as of mid-2014, an astonishing 282% of gross domestic product (GDP)

3. Then: Central banks had a full toolbox of unprecedented monetary surprises to unleash on the market: TARP, TARF, BARF (OK, that one is made up) rescue packages and credit guarantees, quantitative easing (QE), zero interest rate policy (ZIRP) and direct purchases of mortgages, to name just the top few.

Now: The central bank toolbox is empty: every tool has already been deployed on an unprecedented scale. Every potential new program is simply a retread of QE, yield curve bending, asset purchases, etc.–the same old bag of tricks.

4. Then: Central banks had a relatively clean slate to work with. Interventions in the market and economy were limited to suppressing interest rates in the post-dot-com meltdown era.

Now: Central banks have never stopped intervening since 2008. The market is in effect a reflection of 6+ years of unprecedented central bank interventions. Rather than a clean slate, central banks face a global marketplace that is dominated by incentives to speculate with leveraged/borrowed money established by 6 years of central bank policies.

5. Then: Interest rates had rebounded from the post-dot-com lows in 2003. The Fed Funds rate in 2006-07 was above 5%, and the Prime Lending Rate exceeded 8%.

Now: The Fed Funds Rate has been screwed down to .25% for 6+ years–an unprecedented period of near-zero interest rates.

6. Then: The average 30-year mortgage rate was above 6% from October 2005 to November 2008.

Now: Mortgage rates have been under 4% in 2015.

7. Then: The U.S. dollar only soared in financial crises as capital flowed to safe havens in late 2008-early 2009 and again in 2010.

Now: The U.S. dollar began a 20% increase in mid-2014, in the midst of what was generally perceived as a solid global expansion.

8. Then: The U.S. dollar fell sharply from 2006 to 2008, and again in 2010 to 2011, boosting the overseas profits of U.S. corporations that account for 40% to 50% of total multinational corporate profits.

Now: The rising dollar has crushed the overseas profits of U.S. corporations. The soaring USD has also crushed emerging market currencies and stock markets, and forced China to devalue its currency, the the RMB (yuan)–a devaluation that triggered the current global meltdown in stocks.

9. Then: The global boom 2003-2008 was widely viewed as a tide that raised all ships.

Now: Central bank policies are recognized as engines of inequality that have widened income and wealth inequality for 6+ years.

Are there any conditions now that are actually better than those of 2008? Or are conditions now less resilient, more fragile and more dependent on unprecedented central bank interventions?


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  • Lord High Wulfenstraat

    Two points to make on all the money that we owe China, which should relieve everyone’s mind but the Chinese.

    Number One: As of September 2014, foreigners owned only $6.06 trillion of U.S. debt. The American public holds the rest of that debt, which is approximately another $13 trillion. In fact, we owe it to ourselves. And China only holds a percentage of our foreign debt. Consequently, we don’t owe our soul to China. We owe it to Americans who hold the bulk of our debt.

    Number Two: According to Paul Krugman, the famed economist, “It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors.”

    If your image of America is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction. We hold the keys to the safe. We don’t make mistakes. And we’ll let the stock market drop and drop and drop until we’ve bankrupted the Chinese war machine. It’s far better to fight a war this way, where our pocketbooks get lighter, than fight a war where our children die under heavy shelling or in nuclear conflagrations.

    Yes, we’re about ready to hit hard times in the US, but it’s lots better than fighting a hot war. So, just relax. Factories will close and unemployment will rise and the stock market will hit new lows…but the Chinese will be stopped from becoming a global hegemon, to whom you would pay tribute if we lost the war.

    In fact, we’re betting on China splitting apart with the strategies we’ve instituted, including the breaking apart of the Han strongholds into the cultural and industrial watersheds of the Yangtze River, the Yellow River and the Pearl River…with each having a more manageable population approximating the size of the United States. And the present colonies of the PRC will rise as the new countries of Tibet, East Turkestan, United Mongolia, Manchuria, Macau and Hong Kong. Likewise, Taiwan will re-enter the United Nations as its own independent country, without ties to the mainland.

    And that’s that, with a more economically and militarily balanced Asian community of nations. Let’s not forget that it’s not Obama or Congress running this show. They’re only for show, only for blame. They’re the whipping boys whose hands are too often caught in the till. And we don’t live in a real democracy where the people actually rule That’s just more theater. The real rulers are far smarter, more agile, and entirely commonplace…just like the invisible hand of the market.

    • Here are the puppet masters! Here is the 1% list, Which Corporations Control the World?

      A surprisingly small number of corporations control massive global market shares. How many of the brands below do you use? It is a Small World at the Top.

      Largest banks hold a total of $25.1 trillion, and Enough to fund the federal U.S. government for over 7 years or roughly $3500 per person on earth.


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    The vice president of the St. Louis Federal Reserve Bank has admitted that the Fed’s quantitative easing program has been a failure. Even the central bankers are recognizing that central banking and Keynesian economics do not work. Will they see the light and go Austrian?