Japanese Stock Market Crash
The Japanese stock market sold off 1,143 points today or 7.32% in one day! This would be the equivalent of a 1,100 point sell off in the Dow Jones Industrial Average which would bring it from it’s record breaking high level of just below 15,400 to around 14,300. This in not a surprising event to those of you who have been watching Japan’s monetary policy. Last month, Japan’s Central Bank announced unprecedented monetary easing. The move would effectively double their money supply in the course of 2 1/2 years. The easy money policy rocketed the Nikkei index from 12,000 in April to over 15,500 this month. This nearly 30% increase in the Nikkei index had nothing to do with rising corporate profits or fundamental improvements in the macro economy, it was simply driven by the fear of getting stuck with a falling Yen. Central bank money printing does not create value. It simply steals value from savers and places that value into the hands of the central bankers. By doubling their money supply in 2 1/2 years, Japan effectively steals half of the value of Yen saved by their citizens and bond purchasers. This flight to anything but Yen created a bubble in the Japanese stock market. The bubble was built on fear rather than fundamentals. The moment confidence eroded, it collapsed.
How Does This Affect Me?
If you think that was Japan and this is America, think again. Besides the fact that we are all globally connected, The US central bank is doing the exact same thing. We are currently inflating the money supply by just over 10% per year. While it may take 9 years to double the money supply rather than 2 1/2 as in Japan, the principles are exactly the same. The only reason we are seeing a recovery in the housing market and all time highs in the stock market are because investors are afraid of being stuck with the US dollar. Unemployment is still 7.5% by the BLS most sugar coated number. The last time the market hit new highs, unemployment was around 4.5%. The new highs in US markets have nothing to do with the strength of the macro economy. Just like the Japanese stock market, it is another bubble.
How long can it keep going up?
It can keep going up until it doesn’t. Once confidence fails, it would be nothing to see the same type of crash experience by the Nikkei today. Keep your eyes on the Nikkei. If confidence erodes further, contagion could spread throughout all the markets. While the Dow was actually in positive territory at the time of this writing, English, French and German markets had all sold off in excess of 2%. This may not be the big one, but this is how we would expect it to start.
What Do I Do?
If you are not prepared, now is the time to start getting ready. You should stock up at least 6 months worth of food, a means of defending your life and property, medical supplies and means of purifying water. You should have a well stocked bug out bag as well the right shoes in case you need to relocate in a hurry. Outdoor Look has an excellent selection of backpacks to use for your bug out bag as a well as a variety of hiking and walking shoes. For more information on getting prepared, go to “categories” on the left hand side of this page and click on our 7 Step Survival Plan.