Guest Post: Calling All Crash Test Dummies: Big Crash Ahead
by Charles Hugh Smith
If the stock market can never crash again due to the Bernanke Put, then why have all the crash test dummies been ordered up?
I know, I know: the stock market will never go down because Ben Bernanke and the other central bankers won’t let it. It’s funny how the “Bernanke/European Central Bank Put” is ranked alongside gravity as a rule of Nature until markets roll over; then talk shifts from purring adulation of central bankers’ godlike powers to panicky calls for another flood of liquidity/free money to “save” the market from the harsh reality of global recession.
The crash test dummies know better: they’ve been called up for a humongous crash.
The basic mechanism that is being overlooked is Liquidity Resistance. This is akin to insulin resistance, where insulin becomes less effective at lowering blood sugars. The amount of insulin required to maintain normal blood sugar levels increases as resistance rises until even massive doses of insulin no longer have the desired effect and the system crashes.