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Plunging Stock Prices Reveal Shaky Recovery

August 18, 2013 in Economics

By Joseph Salerno

On Thursday, stocks suffered their largest tumble since June due in large part to a so-called “spike” in the yield on 10-year government bonds, which rose by a measly 11 basis points, from 2.712% to 2.82%. This is further evidence of the very shallow and extremely shaky foundations of the current economic recovery, as anemic as it is, which is based on the Fed once again artificially pumping up household net worth in financial assets and housing prices by relentlessly beating down the interest rate below its natural rate. But the Fed is playing a game that it can never win. Once confidence vanishes that the Fed is able to maintain its inflationary QE and zero interest-rate policies, the jig will be up and equity and real estate markets will come tumbling down pulling the still shaky financial system with it.

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