Here are some clues. You detectives theorize what they might mean.
Fact one: Fed Chair has talked like an inflation hawk for months and months now, and acted like one too.
Fact two: The RE slowdown has been well advertised for nearly 2 years now.
Fact three: The sub-prime problem has been well understood by bankers and the Fed for some time now.
Fact four: There has been an explosion of short and leveraged ETF's coming to market and becoming established over the past two years.
Fact five: The Uptick rule has been eliminated--a huge change to the dynamics of our stock market with little or no public debate.
Fact six: The stock market has entered a sharp and dramatic correction.
How might all these facts relate to each other?
Let me give it a shot with a bit of conspiracy theory thrown in.
Every single one of you ( and me too until recently) is making ONE big assumption. That the powers that be have a lot to lose if the fiasco turns out exactly the way market forces will force it to turn out.
Lets reverse that around. Is there a way the powers that be could actually gain if an economic depression came to pass ?
Yes, there is. The powers that be are growth investors. They want to make sure that money works for them over the long run rather than working for money (to use a Kiyosaki-ism). Considering the lavish lifestyles the American nouveau riche has become accustomed to, that can only continue if their assets grow way faster than their expenditures.
Where is the growth today ? Brazil, Russia, India and China for starters. Definitely not the United States.
When the depression comes to pass, BRICs, who directly or indirectly feed the American consumer will experience acute pain in the short run. But the BRICS have set the basic processes and infrastructure in motion so that they will come back and grow on the strength of their own consumer demand even if there is an extended depression in between.
But meanwhile, the super-rich Americans (& Europeans) will buy up assets wholesale in the BRIC countries at bargain basement prices so as to secure their growth vehicles for decades to come.
The most direct analogy would be the role of the British aristocracy before, during and after the Great Depression. Britain in the early and mid 1900s was the global hegemon. Few people know this but the direct catalyst for the crash beginning in Sep'29 was the Bank of England raising interest rates in an already fragile economic sphere. Sure enough, the British aristocracy mopped a lot of cheap assets around the world but especially in the US. This enabled them to keep their castles, play polo and take expensive vacations (even after the devastation of WW II) while Britain itself was relegated to a third rate power, the middle class shrank and a static immobile underclass emerged.
