“I had a stick of CareFree gum, but it didn’t work. I felt pretty good while I was blowing that bubble, but as soon as the gum lost its flavor, I was back to pondering my mortality.” Mitch Hedberg
When the news about U.S. markets and the U.S. economy is depressing, I usually read about Europe and feel better about the U.S.
I spent a lot of time reading about Europe this week, but it didn’t do much good – even with Greece continuing to defy logic by pretending that it’s OK to live off of someone else’s money.
The problem is that easy money policy is not so easy anymore. It never did prop up the U.S. economy, in spite of Keynesian enthusiasm, but at least it created the illusion of economic health by propping up the stock market. Now, it’s unable to do even that. 
U.S. markets fell throughout the week, but especially on Wednesday, which saw declines of more than 2% in the Nasdaq and Russell 2000. The Dow dropped nearly 300 points, or 1.6%, while the S&P 500 finished the day about 1.5% lower. The New York composite stock exchange is now back to where it was last July and the S&P 500 is approaching November levels.
And there’s likely to be more trouble ahead, as a 4% drop in the biotech and semiconductor sectors showed a “classic parabolic reversal,” according to Peter Boockvar, chief market analyst at the Lindsey Group. A parabolic reversal is a technical indicator that signals a change in an asset’s momentum.
“Wednesday’s market selloff is a sign that the bubble created by the Federal Reserve’s easy money policies is deflating,” Boockvar told CNBC last week. “QE … enlarges the bubble, and once the air stops going into the bubble, the bubble starts to deflate again.”
Boockvar didn’t once refer to the footballs used by the New England Patriots, but he noted that easy monetary policy does not create growth; it only pulls forward economic activity that would have happened on its own anyway.
So now he tells us. Would anyone seriously buy more than $3 trillion worth of bonds just to pull economic activity forward?
The Walking Dead
Referring to the current “rotten economy,” he said that super low interest rates have accomplished one thing – enabling “zombie companies” to appear as though they are still alive by borrowing in a cheap debt market. We’re glad to see that the walking dead are at least benefiting from Fed policy.
“There is no easy way out of this,” according to Boockvar, “and if it means a recession, it means a recession. And if it means a pullback, it means a pullback. But I know looking out over the next five to 10 years, we’ve got to get out of this.” 
In other words, we’re headed for a recession. And the Fed won’t be much help, given that it’s already driven interest rates down as low as they can go.
Boockvar didn’t give any clues about how to “get out of this,” but did say “We can get out of this if the Fed had any guts, but they don’t,” he said.
Maybe we’ll finally find out what Janet Yellen means by “macroprudential supervision.” Maybe it’s the secret fix we’ve all been waiting for. I wouldn’t count on it though.
Our only other hope is for President Obama to work with Congress to adopt pro-growth economic policies, rather than ceding responsibility for the economy to the Fed. Or maybe President Obama will issue an executive order requiring the economy to grow faster.
Given those options, we’d better hope that macroprudential supervision really is a secret fix.