The virus that spread to stock markets around the world and nearly destroyed the global financial system in 2008 has reemerged with a vengeance sending global equities deep into the red and wiping out more than $5 trillion in market capitalization in less than two weeks. On Tuesday, before the opening bell, major market index futures in the US plunged more than 400 points signaling another violent day of selling ahead. Worries that a slowdown in China will impact global growth pushed Asian and European markets deep into negative territory while US futures indicate that the Dow Jones is headed for its ninth triple-digit day in ten sessions. The deluge of bad news has battered confidence in the Fed and "sent global equities to their worst monthly slump in more than three years". Millions of Mom and Pop investors have sold out already and are headed for the exits.
While the slowdown in China may be the spark for recent volatility, it certainly isn't the cause. There's a growing consensus that the real problem originated in 2008 when the Fed refused to write-down the debts from the insolvent banking system thus creating the conditions for another calamitous financial crisis sometime in the future. And while the Fed's zero rates and titanic doses of liquidity might have helped to ease the symptoms by flooding the system with cash, the underlying issues remain the same. Thus, as the medication has worn off, the virus has reappeared stronger than ever revealing the ineffectiveness of the Fed's remedies and the urgent need for alternate therapies. More