Global Stock Markets are Next to Fall

Stocks: The Last to Fall

The Chicken Little "sky is falling" thesis has three parts. Government fiscal and monetary policy are disastrous. Consequently, real interest rates will rise leading to a decline of asset prices including stocks. All that remains to occur is the decline in stock markets.

Step 1: Realize Government Failure

Governments around the world have overspent, and papered over their mess with loose monetary policy. The US debt to GDP ratio, for example, is at or above all-time highs. Record debt in a benign economic environment with no recession (yet), relatively low interest rates, and underinvestment in the military. 

I was ahead of most of the world recognizing the failure of monetary policy, and the dramatic shift to large, peacetime deficits (See my 2019 article, "US deficits can become huge."). I was also early in criticizing the US Federal Reserve  -- See my 2017 article "The Fed is Corrupt & Incompetent".)  

Public opinion has now caught up with my earlier views. Large global government debts are recognized as problems. The US Federal Reserve is now blamed as a primary cause of the post-COVID inflation. 

Step 2: Real Interest Rates will Rise

Real interest rates will rise as a result of failed government policy. Because of failed fiscal and monetary policies, government bonds have become risky investments. The consequence is that investors demand higher rates to compensate for the risk they are taking. 

In 2016, I pointed out the fact that Japanese rates were too low and would rise a lot (click for article). The markets certainly took their time figuring this out, but they are making up for it recently with bone-crushing increases in interest rates. 

Japan's looming debt crisis may come earlier than other markets, but the US, UK, and Germany are all facing sharply rising interest rates. A bond market crisis is looming. 

Step 3: Decline in assets including stocks.

Long-term US bonds have lost half their value, bitcoin has lost 50%, silver 40%. Meanwhile stock markets around the world are at, or near, all-time highs. 

Steps 1 & 2 of the Chicken Little analysis have occurred. Step three is coming: stocks around the world will fall, and the financial crisis will be severe.