by Nick Giambruno, International Man:

You may recall the international spectacle Alan Greenspan sparked in 1996.

In an otherwise dull and forgettable speech, Greenspan, the Federal Reserve chairman at the time, said the now famous phrase “irrational exuberance.”

Investors thought Greenspan meant the Fed was about to raise interest rates.

Of course, Greenspan didn’t say the Fed would raise rates. Nor did he intend to signal that.

Nonetheless, investors quickly panicked.

US markets were closed at the time, but stocks in Japan and Hong Kong dropped 3%. The German stock market fell 4%. When trading started in the US the next day, the market opened down 2%.

Billions of dollars of wealth vanished in 16 hours… all because one man said two words.

That’s an absurd amount of power for one person to have.

It’s also a shameful testament about the economy. It’s based more on the Fed’s shenanigans than actual production.

After the US president, the Fed chair is the most powerful person on the planet.

By simply uttering the right words, the Fed can create or destroy trillions of dollars of wealth in both the US and abroad.

And today it’s set to launch a financial atomic bomb.

We Are in Uncharted Territory

Throughout the 1920s, the Federal Reserve’s easy money policies helped create an enormous stock market bubble.

In August of 1929, the Fed raised interest rates and effectively ended the easy credit.

Only a few months later, the bubble burst on Black Tuesday in October 1929. The Dow lost over 12% that day. It was the most devastating stock market crash in the US up to that point. It also signaled the beginning of the Great Depression.

Fast forward to today…

The economy has been on life support since the 2008 financial crisis. The Fed has pumped it up with unprecedented amounts of “stimulus.” This has created enormous distortions and misallocations of capital that need to be flushed.

Think of the trillions of dollars in money printing programs—euphemistically called quantitative easing (QE) 1, 2, and 3.

Meanwhile, with zero and even negative interest rates in many countries, rates are the lowest they’ve been in 5,000 years of recorded human history.

This is not hyperbole. We’re really in uncharted territory. (Interest rates were never lower than 6% in ancient Greece and ranged from 4% to over 12% in ancient Rome.)

The too-big-to-fail banks are even bigger than they were in 2008. They have more derivatives, and they’re much more dangerous.

Allegedly, the Fed has been taking these actions to save the economy.

In truth, it’s warped the economy far more drastically than it did in the ’20s. I expect the resulting crash to be that much greater.

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