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In the past few weeks, the stock market crash begun; one can easily say that the market has been dropping like a stone. The Dow has fallen by thousands of points and right now the stock market is in a bear market and this is just the beginning. This is the biggest market selloff since 1987. We have a mass scale destruction of wealth never seen before and billions of dollars are being lost from the market every day.
It is surprising that because of this global panic, we now have the dollar shortage as the emerging markets continue coping up with the falling local currencies because of this imminent global economic collapse. The dollar shortage can be seen in the Bloomberg dollar index and the DRA spread. This is closely linked to the interbank dollar funding that has skyrocketed in the last four weeks.
The Federal Reserve has used their monetary power to solve some of the liquidity problems for various corporations but still the dollar shortage because global investors have been dumping assets from various emerging markets and they are now scrambling to get the dollars.
The stock market has been plummeting and at the same time, the price of oil has fallen to historic lows and this collapse of oil prices has crippled the struggling petrodollar system.
Investors are liquidating all their position in the stock market out of this global panic and this is pushing the prices further on the downside.
While the stock market crash is happening, many American corporations are going through serious financial struggles and many companies might go bankrupt. It looks that most companies are overleveraged via share buybacks and this might not end well. Economists are predicting that this is just the beginning and this economic crisis might end up being a depression. Many companies are about to go bankrupt and this is just the beginning of the bailout cascade.
The US economy is on the verge of an economic collapse and the administration has been holding emergency meetings to deliberate on how they will avoid further meltdown in the markets. Right now Wall Street is having the most difficult time since the 2008 financial meltdown. Right now hyperinflation is loaming because of this global economic turmoil. The stock market has already hit record lows and we are experiencing a market crash similar to what we had during the great depression.
The FED has also been pumping a lot of liquidity into the markets. They have recently announced that they will be pumping about $1.5 trillion on addition to the $9 trillion that they have already injected to the markets in the last 6 months
The American banks are right now at an edge of collapse because amidst this economic meltdown, they are caught up in huge debts. Most of the banks are overleveraged 100:1 and this looks like a bomb that will soon explode in our faces. Goldman Sachs, Citigroup and JPMorgan Chase are some of the big speculators and right now they have been caught up in shocking financial troubles. Collectively, these three banks have a total exposure of about $137 trillion in derivatives. If this bursts, the whole American financial system will crash.
In the United States, economic numbers are expected to be catastrophic in the first quarter of the year. The chief US economist in JPMorgan Michael Feroli is predicting that the US GDP will fall by -14 percent and this might worsen if the current global panic will not come to an end. Experts are predicting that this panic might continue for the next 12-18 months; if this is the case, the real GDP will be worse than the expectations. This means that an economic crisis is inevitable and if things get out of control, an economic depression will set in.
Almost every American is aware of the 1929 economic meltdown that ushered us to a four year of economic depression. At this time, the US economy was on a life support machine. The unemployment rate had hit over 25 percent while 40 percent of the banks went bankrupt at that time. Because of this, millions of Americans lost all their savings and 50 percent of the American industries were shut down. The engines of the American industries girded to an abrupt halt and thousands of farms were foreclosed. No one wants to see this happen to America again but it might be unavoidable. We have a broken system that no one is willing to amend. For many years our economy has been a big bubble just like it was prior to the great depression.


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Epic Economist

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