A bit more of a closer look into the suspect activity of the FED vs. stock markets. It appears Helicopter Ben saved another day with the money pumps.

For now - VHF

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Is THE REAL Crisis About to Begin?

Graham Summers

February 28, 2011

The BIG story from last week is that stocks broke support in a BIG way, falling below the trendline that has supported them since this rally started in late August ‘10. Indeed, it looks as though we not only broke below this line but have since rallied to retest it: a classic pattern during corrections.

The big issue right now is if stocks can reclaim this line, or if they’re rejected at it (indicating former support is now resistance). Another way of putting this is whether or not the Fed has the power to push the market into yet another ramp job.

In plain terms, the entire market rally since the March 2009 lows has been fueled by rampant liquidity and little else. EVERY time the market came close to breaking down, the Fed ramped up the money printing and stocks exploded higher again.

The Fed is trying this same trick again for this correction. Indeed, as soon as stocks began to dip the US monetary base went vertical… which begs the question: why is Bernanke so terrified? Seriously, stocks only fell 3.5% and he went ALL OUT printing money to hold the market up.

Consider that stocks have rallied nearly 30% since the start of September 2010. As Tyler at ZeroHedge has noted, the market has traded above its 55-DMA for 123 days straight: an absolute record.

So… we’ve just put in one of the most incredible rallies in stock market history, and the very minute that the market begins to correct Bernanke starts pumping his brains out?

I’ll tell you why.

Bernanke is absolutely TERRIFIED of what’s coming. He knows that if his famed “Bernanke Put” is no longer sufficient to propping up the market, then he’s about to lose control of the financial system again… which means, you guessed it, THE REAL CRISIS is about to hit.

Remember, the only thing that pulled us from the brink in 2008 was Bernanke printing like a lunatic. It’s the ONLY thing that has held the market together. And while it may have kicked off a major rally in stocks… it FAILED to address the underlying issues that caused the Crisis in the first place: namely excessive debt and leverage.

In fact, Bernanke has made the financial system even MORE leveraged than it was in 2008. So if the Fed’s moves no longer have an effect on the markets, then it’s time for the REAL Crisis… the Crisis to which 2008 was a warm up.

Why?

Because when the stuff hits the fan this time around, the Fed will be powerless to do anything. Bernanke’s already shot every bullet he’s got. So when he loses control this time around, not only will the market crater, but the belief that has kept the financial system afloat through every Crisis of the last 30 years (namely that the Fed can always save the day) will shatter.

And when that happens it will be the US financial system, NOT just stocks that goes down. After all, Bernanke has bet a heck of a lot more than just stocks on his thesis that money printing generates wealth. He’s bet the stock market, bond market, US Dollar and even the US economy.

So when the whole thing comes crashing down this time, we’ll be seeing a systemic collapse that will make 2008 look like a picnic. After all, Bernanke’s trashed the US Dollar, so that safe haven is now garbage. US bonds aren’t much better as the Fed is now monetizing just about everything that the US issues (and is the largest owner of US debt, owning more Treasuries than even CHINA).

So what’s that leave?

Gold, silver, and other inflation hedges that will maintain purchasing power when the US Dollar collapses.