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Yield-seeking speculation promoted by the Fed’s zero interest rate policy has done two things: On the real side of the economy, this policy has discouraged saving, while channeling what saving that does occur into increasingly speculative areas of the economy – witness the enormous issuance of junk debt and leveraged loans to already highly-indebted borrowers in recent years, as investors clamored for a “pickup” in yield over safer investments.
...That’s really the main effect QE has – to encourage yield-seeking speculation that drives up the prices of risky securities, but without having any material effect on the real economy or the underlying cash flows that those securities will deliver over time.
At about $23 trillion in U.S. non-financial equity market capitalization, and over $100 trillion in total U.S. private net worth, a standard, run-of-the mill bear market decline in stocks on the order of 30% would likely be associated with total paper losses in the private sector on the order of $10 trillion.
Meanwhile, much has been made about “cash on the sidelines” held by corporations, where the sum of currency, bank deposits and foreign deposits of U.S. nonfinancial corporations has surged by $700 billion since 2008. What’s typically left out of this observation is that the debt of those same corporations has surged by $1.5 trillion over the same period... much of this debt issuance has been used to finance stock repurchases instead of expanding investments in productive capital.
... it has made corporate balance sheets much more vulnerable to debt refinancing risk down the road, particularly if earnings fall short or credit spreads rise as they have in prior cycles.
originally posted by: infolurker
a reply to: FamCore
Elul 29, 2001 - Largest Crash in History
Elul 29, 2008 - Bigger Crash, making it the largest in history
Elul 29, 2015 - ???
originally posted by: FamCore
originally posted by: infolurker
a reply to: FamCore
Elul 29, 2001 - Largest Crash in History
Elul 29, 2008 - Bigger Crash, making it the largest in history
Elul 29, 2015 - ???
Great. Just great. September 13th it is - marking my calendar. haha I hope the pattern is wrong
but essentially the unrealistic expectations of the Fed and Wall Street are once again going to result in a major market shift
originally posted by: FamCore
a reply to: Enochstask
Think about it, they've "created" trillions of dollars out of thin air, Already. And now the economy and stability of our private sector is on the hook for it.
originally posted by: Enochstask
It's a darn shame that the Federal Reserve and the European Illuminati are going to take a 10 trillion dollar loss.
originally posted by: buckwhizzle
It is all just one big Ponzi scheme.