Fed’s “Doom Loop” Locks Us On Course For Another Crisis

Paris – We’ve seen at least three articles explaining why the Fed failed to increase interest rates last Thursday.

One says Goldman Sachs is calling the shots now…

Another says China has the Fed under its thumb…

Still another claims the Fed is a victim of its own policies and is now stuck in a “doom loop”…

All of them are right.

All of the powers that be – including the Fed – want the party to continue. All know that if the Fed starts going around and turning off the lights and unplugging the music, the party is over.

Too Much of a Good Thing

As we tried to understand in our recent book, Hormegeddon: How Too Much of a Good Thing Leads to Disaster.

Public policies create their own support. When they’re big enough, and go on for long enough, they become unstoppable.

Yesterday, the Dow rose by 125 points, recovering just under half ofFriday’s losses.

But the bigger picture shows a stock market cut off from reality –pretending to “party on” while desperately trying to ignore that the rest of the revelers have gone home.

A report in the Financial Times on a conversation with hedge fund manager John Burbank of Passport Capital begins:

The world economy is locked on a course toward an emerging markets crisis and a renewed slowdown in the U.S., despite the Federal Reserve’s decision last week to hold off on a rise in rates.

China, the world’s No. 2 economy, has already seen its stock market lose more than 40% of its value.

Japan, the world’s No. 3 economy, was supposed to be doing the funky chicken by now, revived from its funk by Prime Minister Shinz? Abe and a long line of prominent economic advisors, including Paul Krugman.

Under Abe, Japan has done “whatever it takes” to get its economy moving ahead. But whatever it did was not whatever it needed. Instead of racing ahead, Japan seems to be in its own permanent doom loop.