Stock Market Panic! Why is It Happening?

Perhaps stock prices for past few years were to a large extent an inflationary bubble.


Everything is multicausal, economies and markets are complicated things, and at base the only thing we can know for sure about why prices start to plummet is that, other things being equal, lots of people are more eager to sell than to buy, and as to why that might be, well, I guess you need to ask them if you want to be absolutely sure.

But one culprit in the mix that is largely only voiced on the fringes of those doubtful about the fundamentals of an economy buffeted by the past few years of Federal Reserve quantitative easing and low interest rate policy (making it hard to get decent returns anywhere else, and mere saving is never an option) is the suspicious apparent link between those Fed policies and stock market prices rises, or perhaps more appropriate, stock market price inflation.

See these posts from March 2013 (see to the right the chart from 2013 mentioned in that post) and just last week raising the flag of a stock market rise that might not reflect enduring fundamentals, but temporary Fed policy.

Warning from 2011 (with many links) about how the general atmosphere over the past couple of generations of constant, even if sometimes low on a year by year basis, inflation making mere "saving" a suckers game and "investment" (or loaning the government money) a necessity feed into a financial economy perhaps not as healthy as we might like.