The sell-off is largely due to this — Fitch is now warning that unless the US Government stops running deficits it will be downgraded.
And there is no credible plan to do that, because doing so means that you must admit that the so-called “growth” and “recovery” of the last four years has been an intentional lie.
Removing the 10% deficit spending means that GDP instantly contracts by that same 10%. This is arithmetic and cannot be avoided, evaded, or bargained away. GDP = C + I + G + (x – i)
Reduce “G” 10%, GDP contracts 10%. Period.
Increase taxes and either “C” or “I” contracts by the same amount. Period.
There is no path out of this box without recognizing what we have done and accepting the accumulated damage and pain that we have taken on over the last four years, and continue to accumulate each and every day.
If we do not address this the market will. This is the fallacy of the Libertarians, Republicans and Democrats.
We are watching the start, here now and today, of an all-on meltdown in the markets as the promise of lies is meeting with the reality of arithmetic.
The other day I wrote a Ticker in which I asked how Rochdale could put on a $700 million position in Apple with $3 million in capital. The answer is that in an honest market it could not do so as it could never clear the trade. The fact is that it is reported they did, which means the market is not honest, and this is just the latest bit of evidence.
The entire market and political system are one gigantic scam. The market is now calling the bluff on the politicians and this will continue right up until someone tells the truth.
Where does it end? It doesn’t, if this isn’t stopped. It doesn’t end until all of the accumulated damage in the system, more than $5 trillion over the last four years and close to $25 trillion since 2000, comes back out.
It can either happen via the truth or the market will start to force margin calls on everyone who has those trades on and we will then find out who doesn’t have capital behind them.
The answer is, quite likely, literally nearly everyone.