Since President Trump's inauguration, the markets have seen a massive glut of speculation, especially in regards to the Dow Jones Industrial Average, which rose to above 20,000 this January for the first time in world history.
For perspective, in 1994, before the Dot-com Bubble (when the era of bubble finance began in earnest), the Dow index was priced below 4,000. Since then, central bank policy has become more and more radical. While real growth has taken place since 1994, reckless monetary policy has encouraged asset price inflation.
As a candidate, Donald Trump lambasted the stock market as "one big fat, ugly bubble." Since then, Trump has made an about-face and embraced the bubble, tweeting his approval on Jan. 25, 2017:
Great! #Dow20K https://t.co/wXFhXBLgag— President Trump (@POTUS) January 25, 2017
By embracing and not condemning it, the bubble is now Trump's. He owns it.
The bull market began in earnest on the heels of Trump's victory, when the markets decided that his "free market" reforms and spending stimulus would be a boon for the economy. But, the bubble is not Trump's bubble. That is to say, he is not responsible for it. That honor belongs to Ben Bernake, Janet Yellen, and those politicians that encouraged their behavior.
Even though he didn't cause the bubble, Trump will not create any real grown without major pain. Economist Peter Schiff states that the the economy is like a heroin addict. It needs monetary stimulus to survive. Without it, the bubble will deflate, and we will all be in for rough times (unless you invest in gold and cryptocurrency).
Because of artificially low interest rates, Americans have absolutely no savings. In order to wipe clear out the poor investments made by artificial interest rates, those investments need to be allowed to fail, interest rates need to be raised, and Americans need to start saving again so they can invest in business measures based on interest rates set by the free market and not the Federal Reserve. This is basic Austrian business cycle theory.
Just like a real heroin addict, the economy needs to kick the habit in order to make any real, meaningful recovery. If Yellen continues shooting the economy up with this "monetary heroin" (as Mr. Schiff calls it) we will eventually overdose, and hyper-inflate the dollar in a Wiemar Republic-style meltdown.
Despite that historical parallel, we are essentially in uncharted economic territory. Interest rates have been at, or near zero for longer than ever before in financial history. In many facets, our "recovery" from the 2008 financial collapse has been worse than the accompanying recession.
In contrast to the rosy picture painted by the mainstream media, Americans have been hurting, and they've been hurting bad. According to Zerohedge and USA Today, "7 in 10 Americans have less than 1,000 dollars in savings." Throughout the "recovery," cracks like these have shown through the stock market's buying euphoria.
This week, the Dow has made its biggest losses since the post-election rally, falling a .9% total. Earlier today, Zerohedge dropped an article whose title speaks for itself: "Cudmore (Bloomberg) Calls it: The Correction Has Started." Could this really be the correction that we've been waiting for? Could this decline signal the end of the markets' irrational buying euphoria? Right now, that markets are built on hopes that Trump's reforms will bring prosperity.
I'm sorry to say that this will not happen. When the markets realize that, or the Fed finally raises interest rates more than just .25%, hold onto your butts.If the markets tank, what will that mean for gold, emerging markets, and other cryptocurrencies like Bitcoin, Steem, and Ethereum?
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