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The Coming Wall Street Crash

Posted By on October 12, 2013

wall street

The Storm Clouds Gathering video below lays out a strong case that Wall Street is headed for another crash – either in December or January.

According to the filmmakers, the rise in stock prices in 2013 is really a bubble about to burst. The main cause of the bubble is the $85 billion in Quantitative Easing (QE3) the Federal Reserve has been injecting into the economy every month. This money doesn’t go to American businesses or consumers, but to banks. They, in turn, invest it in the stock market. Whenever there are more buyers than sellers, stock prices go up.

The Schiller P/E Ratio

Current price indicators are virtually identical to past bubbles that have triggered crashes, as is the Schiller price to earning (P/E) ration. In a normal market, the rise in a stock’s price should reflect how well it’s performing. Once the Schiller P/E ratio passes a certain critical value, a “correction” (i.e. market crash) is inevitable.

Insiders Pulling Out

The most ominous sign of an imminent crash is all the Wall Street insiders (the 1%) pulling their money out of stocks and putting it into real estate and other tangible assets.

No One Can Predict the Exact Month

There are too many variables to predict the exact month the crash will occur. However the video offers a number of scenarios that could potentially trigger the crash, including a default on the US debt, a war in Syria or Iran, or a meltdown in the $700 trillion derivatives market.

Derivatives are a sophisticated form of gambling in which bankers bet on the future price of a stock or commodity. The derivatives bubble was $500 trillion when the meltdown started in 2007. Because $700 trillion is more than ten times the size of the world economy, the banks exposed to derivatives (all of them) would fail without massive government bail-outs.

Caveat

The only disappointment in the film is the shallow analysis of Quantitative Easing at the end. It seems to support a monetary system in which private banks are allowed to create money out of thin air, but not government. The problem with QE3 isn’t that the Fed is pumping new money into the economy. The problem is giving all $85 billion of it to banks. It should be used to help small businesses and ordinary families. See my last post An Australian Looks at the US Economy

Enjoy.

photo credit: nromagna via photopin cc


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