So far, it’s a different type of crisis—market tumult in the face of global QE, in the face of ultra-low interest rates and the perception of a concerted global central bank liquidity backstop. It’s the kind of crisis that has so far been able to achieve a decent head of steam without causing much angst. And it’s difficult to interpret this bullishly. If Brazil goes into a tailspin, it will likely pull down Latin American neighbors, along with vulnerable Indonesia, Malaysia, Turkey and others. And then a full-fledged “risk off” de-risking/de-leveraging would have far-reaching ramifications, perhaps even dislocation and a collapse of the currency peg in China. China does have a number of major trading partners in trouble....And a $5 trillion shadow banking system to boot(!), the likes having been largely inflated in the aftermath of 2008's derivatives crash epicentered in London.
—Credit Bubble Bulletin, September 12, 2015
Which brings us to "the most sweeping reforms of the financial industry since the Great Depression"—Dudd Frankenstein. Remember its principal purpose? Prop up derivatives markets (whose securities are the backbone of shadow banking systems)!
China, and emerging markets more generally, were the mechanisms through which this was accomplished. This prop's unraveling cannot be stopped. Such is the problem with Ponzi schemes, and the post-Bretton Woods global banking system is built upon the largest in history...
P.S. Next depth $SPX should shortly sink to is 1400.
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