Previously by Charles Hugh Smith: Why Isn’t Anyone Talking About Writing Off 3 Trillion Euros of BadDebt?
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.
Liquidity has the same dynamic. Back in the good old days of 2008-09, a $1 trillion tsunami of liquidity was enough to save the global debt machine from implosion and spark an enduring global stock market rally.
The current rally since late December required (by some estimates) over $3 trillion in global liquidity injections from central banks. In four years, the market’s resistance has skyrocketed: where $1 trillion launched a multi-year global rally (goosed along with QE2 and Operation Twist when it began to falter), now $3 trillion yielded a 100-day rally that is already coming apart at the seams.