Wall Street, World Financial Markets Very Sad Free Fed Money May Be Coming To An End

From The Guardian:

Stock markets worldwide plummeted on Thursday, after the Federal Reserve chairman, Ben Bernanke, rattled investors by signalling an end to America's drastic recession-busting policy of quantitative easing.

Share prices across the globe have surged over the past year, helped by an unprecedented injection of cheap money, with the Fed buying up $85bn (£55bn) worth of bonds every month, and the Bank of Japan pledging "shock and awe" QE to revive a stagnant national economy.

But when Bernanke laid out a timetable on Wednesday night for cutting off the Fed's bond purchases by mid-2014, his words prompted a violent sell-off, which began in New York after European markets were closed, and ricocheted around the world on Thursday, from Tokyo to Istanbul and Oslo to Jakarta. In London, the 2.98% decline in the FTSE 100 index was the steepest since September 2011.

Elsewhere in Europe, shares suffered their biggest one-day fall in 19 months, with Spain's Ibex losing 2.9%, and the German, French and Italian markets all down by more than 3%.

The slide on Wall Street resumed when US markets reopened on Thursday. After heavy selling throughout the day the Dow Jones closed down 2.3%.

"We've had a market that for some years has been addicted to stimulus, and it's taken a brave man to say it has to end somewhere," said Neil Mellor, of BNY Mellon. He added that the true test of whether the US economy was strong enough to cope without QE would come when the prop of cheap money had been removed. "We don't know if there's a credible recovery there; we're peeling back the plaster."

Bond prices also fell worldwide, a trend that will push up borrowing costs for governments and consumers if it is sustained. Andy Haldane, the Bank of England's outspoken director for financial stability, warned last week that through QE, policymakers had deliberately inflated "the biggest bond bubble in history".

Let's repeat: "through QE, policymakers had deliberately inflated 'the biggest bond bubble in history'".

From a tech bubble to a real estate bubble to a commodity bubble to a bond bubble.

That's the 21st century economy in a nutshell.

Phonied up profits and stock prices propped up by the Fed printing press and cheap money.