Yesterday, the Dow Jones plunged over 200 points, seemingly out of nowhere. To say this caused much hand-wringing would be an understatement. A little searching around shows that it may not have been ‘out of nowhere;’ it seems there may have been a very good reason.
It appears that an embargoed record of the Federal Reserve’s Advisory Panel minutes was quite possibly the catalyst. At the very least, it seems that the bankers themselves are now telegraphing a real change in policy due to their serious trepidation about this market monster they have created. In one revealing statement, they actually ADMIT to having created a bubble.
“There is also concern about the possibility of a breakout of inflation, although current inflation risk is not considered unmanageable, and of an unsustainable bubble in equity and fixed-income markets given current prices.”
WUT? You mean things like an 18% rise in the stock market in the face of massively contracting personal income and spending might be a disconnect from reality?
And in case that wasn’t enough, there’s this little gem:
Uncertainty exists about how markets will reestablish normal valuations when the Fed withdraws from the market. It will likely be difficult to unwind policy accommodation, and the end of monetary easing may be painful for consumers and businesses. Given the Fed’s balance sheet increase of approximately $2.5 trillion since 2008, the Fed may now be perceived as integral to the housing finance system.
These are just some highlights, but you can read the whole thing for yourself.