{"id":17633,"date":"2016-02-11T12:02:22","date_gmt":"2016-02-11T17:02:22","guid":{"rendered":"http:\/\/olduvai.ca\/?p=17633"},"modified":"2016-02-11T12:02:43","modified_gmt":"2016-02-11T17:02:43","slug":"here-come-the-money-helicopters-2","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=17633","title":{"rendered":"Here Come the Money Helicopters!"},"content":{"rendered":"
\n

Here Come the Money Helicopters!<\/a><\/h3>\n

The Negative Wealth Effect<\/strong><\/p>\n<\/header>\n

\n

Since the start of the year, the Dow is down about 7%. But certain stock market sectors have undergone a much harder pruning.\u00a0First, energy\u2026 then the tech\u2026 and now banks.\u00a0Shares in too-big-to-fail bank Citigroup are down almost 28% so far this year. And shares in Europe\u2019s biggest bank, Deutsche Bank, are down by more than 36%.<\/p>\n

As always, we don\u2019t know where this leads.<\/p>\n

But as\u00a0we warned<\/a>\u00a0at the start of the year, it could be the beginning of a serious bear market. And more!\u00a0As Nobel Prize-winning economist Paul Samuelson put it, the stock market has famously predicted nine out of the last five recessions.\u00a0Further study shows that a stock market plunge of 10% has about a 50% probability of presaging a recession\u2026 100% of the time!<\/p>\n

Hope that\u2019s clear.<\/p>\n

But a stock market plunge not only predicts trouble in the economy; it also causes it.\u00a0The Fed\u2019s treasured \u201cwealth effect\u201d \u2013 in which investors, seeing the value of their portfolios rise, feel richer and rush out and spend \u2013 works in both directions.\u00a0When stock prices fall, investors pull back on spending, and the economy goes into a cold funk.<\/p>\n

The further stocks fall\u2026 the more the likelihood that the economy will follow.\u00a0This has the central planners worried.<\/p>\n

Pushing on a String<\/strong><\/p>\n

Here\u2019s the chief economics commentator at the\u00a0Financial Times<\/em>, Martin Wolf:<\/p>\n

What might central banks do if the next recession hit while interest rates were still far below pre-2008 levels? As a paper from the London-based Resolution Foundation argues, this is highly likely. Central banks need to be prepared for this eventuality.<\/p><\/blockquote>\n

How?<\/p>\n

The most important part of such preparation is to convince the public that they know what to do.<\/p><\/blockquote>\n

Good luck with that!<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Here Come the Money Helicopters! The Negative Wealth Effect Since the start of the year, the Dow is down about 7%. But certain stock market sectors have undergone a much harder pruning.\u00a0First, energy\u2026 then the tech\u2026 and now banks.\u00a0Shares in too-big-to-fail bank Citigroup are down almost 28% so far this year. And shares in Europe\u2019s […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[6190,1718,1839,216,281,5981,12326,3783,4255],"class_list":["post-17633","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bill-bonner","tag-citigroup","tag-deutsche-bank","tag-dow","tag-europe","tag-helicopter-money","tag-negative-wealth-effect","tag-stock-market-collapse","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17633","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=17633"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17633\/revisions"}],"predecessor-version":[{"id":17635,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17633\/revisions\/17635"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=17633"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=17633"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=17633"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}