Is the stock market decline of August 20-21 welcome or unwelcome?
At this point we do not know. In order to keep the dollar up, the basis of US power, the Federal Reserve has promised to raise interest rates, but always in the future. The latest future is next month. The belief that a hike in interest rates is in the cards keeps the US dollar from losing exchange value in relation to other currencies, thus preventing a flight from the dollar that would reduce the Uni-power to Third World status.
The Federal Reserve can say that the stock market decline indicates that the recovery is in doubt and requires more stimulus. The prospect of more liquidity could drive the stock market back up. As asset bubbles are in the way of the Fed's policy, a decline in stock prices removes the equity market bubble and enables the Fed to print more money and start the process up again.
On the other hand, the stock market decline last Thursday and Friday could indicate that the players in the market have comprehended that the stock market is an artificially inflated bubble that has no real basis. Once the psychology is destroyed, flight sets in.
If flight turns out to be the case, it will be interesting to see if central bank liquidity and purchases of stocks can stop the rout.
*Dave Kranzler earned a master's degree in business administration from the University of Chicago, with a concentration in accounting and finance. Currently he co-manages Golden Returns Capital, a precious metals and mining stock investment fund based in Denver.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
1
1
