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The Market is Going to Crash, Get Out While You Can

By: Steve Johnson

10/23/2009 - 37 Comments

The primary reason behind the market rally over the last year had been because of all the money the Fed pumped into the financial system.

It took trillions of dollars to avoid a compete market meltdown, but now the time has come to deal with the consequences of printing money at a rate that has never before in the history of the world been see.

As I have said many times before, it would take the entire world to support the dollar through this recession and that is unlikely to happen. 

No matter how much foreign nations have invested in the dollar or how important they think the dollar is to keep their exports shipping to the U.S., the dollar is sinking and the world is going to have to deal with the consequences.

A few days ago the dollar reached 1.5 euro = 1 dollar.  European finance officials called this a ‘disaster’ for the economy in which they have already intervened by committing billions of euros in stimulus packages and record-low interest rate to help their economy and keep the euro from rising against the dollar.

A few months ago a European official said that if the dollar reaches 1.5 euro, something must be done. That something could be anything from buying more dollar by printing more of their own currency or replacing the dollar or a more likely option to increase the political pressure on the U.S. to stop their reckless monetary policy

The weakness in the U.S. economy has driven the political pressure to stimulate the economy, with several bad monetary policy action that have weakened the economy even more then before the crash of 2008.

The weakening dollar puts Obama is a corner, as the global political pressure will quickly overwhelming his domestic agenda.  Obama and the Fed have already started to put the brakes on the money pumping, but the weakening dollar will demand much more painful changes in monetary policy that I believe will cause the markets to crash. 

They are not going be get the dollar to rally just by talking about their 'strong dollar policy' that does not exist or by increasing the interest rates by a few percent. It's going to take a lot more then that to stop the dollar from sinking.

Here are 5 things that will contribute to a market crash;

  1. Rising Interest Rates – The Fed chairman has already said that the Fed cannot continue to hold rates low forever and the political pressure of the weakening dollar will force them the begin raising rates by the early next year if not before.
  2. The Housing Market Crash will Continue – The housing market is going to crash again and it will take a large part of the economy with it.  Here are 5 reasons why.
  3. Wage Controls – Just today, Obama’s pay czar ordered seven companies that received billions in government bailouts to cut their salary for top executives.  This is not a good idea, because it created yet another anti-business policy.  If your business makes too much money, by paying your executives too much, then the government can illegally interfere in your business and force wage controls.  These businesses should have never been bailed out in the first place. Then the free market would have naturally imposed wage reductions for these executives.  Government wage controls, cause business leaders to leave the country in search for a free nation that they can earn whatever they are worth.  This policy could single handedly drive the financial industry from New York to London or China or somewhere else. 
  4. More Regulations, Higher Taxes – Ben Bernanke is daily asking congress to overhaul the financial regulation, that he likes to blame for the economic crisis.  Mean while the recode deficits and dropping tax revenues have already caused many states to increase taxes across the board. The only reason the Fed has not increased taxes yet is because they can and have been printing dollars. 
  5. The End of the Bailouts and Stimulus packages – If the dollar was still strong and the world was still buying up out dollars as fast as we could print them, then congress and the president would continue to hand out money. Just yesterday, Obama said he would like to extend the first-time home buyers credit, but we cannot afford to – even thought the national realtor lobby said that without it, the housing market would crash again.  

Some of these are already taking place and others are in the near future as the weakening dollar will be too much for the Fed to continue its reckless monetary policy – and the real economy, based on real consumer demand will finally be allowed to show itself. 

The good news is that when the government finally stops it's reckless monetary policy, the economy will be able to begin it's long recovery and build a new foundation. 

When the market crashes the small business sector will be able to start businesses because the bogus government policies will no longer be supporting the phony economy that they have tried so hard to pressure.

The market is going to crash. What I don’t know is when or what else the government will try to do when it does. I don’t know if it will crash over several months or within a short period of time. 

Either way, I’m going to wait this one out

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Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse

In discussions of today's economic meltdown and what to do about it, the Federal Reserve is a stealth helicopter: it never shows up on the radar. With the exception of a few esoteric specialists and those Ron Paul Revolutionaries who burst into chants of "Abolish the Fed!" Historian Thomas Woods notes in this important book, the Federal Reserve bears a large part of the blame for the mess we're in. In the first part of "Meltdown," Woods shows how both in theory and in practice, Fed policy fueled an artificial boom and is now leading us to a much larger meltdown.

The Case Against the Fed

This book, written by Murray Rothbard, an economist and historian of fairly well known repute, is a scathing attack on not only the Federal Reserve, but the interests that created this institution. Rothbard explains how the Federal Reserve is the true source in the destruction of wealth, which has led to the destruction of the middle class and continues to sift money into the hands of the wealthiest.

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Gold: The Once and Future Money

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