Courtesy of Pam Martens.
Ben Bernanke, Chairman of the Federal Reserve Board
In the past two trading sessions, Wednesday and Thursday of this week, the Dow Jones Industrial Average has shaved 550 points out of investors’ pockets. Mainstream media is in lock-step agreement that the decline is owing to fears of slowing growth in China and the potential for the Federal Reserve to “taper,” or retrench from buying $85 billion a month in mortgage-backed securities and U.S. Treasuries.
To borrow a phrase from H.L. Mencken, “When you hear somebody say ‘this is not about money,’ it’s about money.”
There’s an old expression on Wall Street: bull markets eventually crumble under their own weight. That’s because, at some point, the value of the market is too big to drive higher. It has only one direction in which it can move and that’s down. It’s about money.
According to the World Bank, the total value (or market capitalization) of all domestically listed stocks in the U.S. has moved from $11.7 trillion at the end of 2008 to $18.6 trillion at the end of 2012. That means it takes roughly $1.8 trillion to move the market 10 percent higher. That’s a lot of money, even when leveraged with enormous amounts of margin debt.
As the U.S. stock market has moved higher, it did so on the back of rising margin debt. According to the Federal Reserve, margin debt on the books of broker dealers has increased from $276.5 billion at the end of 2010 to $379.5 billion at the end of March 2013. (The New York Stock Exchange released a report early this month showing that margin debt had reached an all-time record as of April 30, 2013, to a whopping $384 billion.)
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