38 THE BiG DROP
The point is, how much more stress can the system take?
The system almost collapsed in 1998 and it almost col-
lapsed in 2008. It’s three strikes, and you’re out.
The next collapse — the big drop — is coming.
You can see it coming because of the dynamics. The difference
is, next time, the crisis will be bigger than the Fed.
The Fed was able to bailout LTCM, Morgan Stanley and
Goldman Sachs. But when the Big Drop comes, it’s going to be
too much for the Fed to handle. They’ve used up all their dry
powder; they’ve taken their balance sheet to $4 trillion.
What are they going to do, take their balance sheet to $8
trillion?
How can they take their balance sheet that high to re-liquefy
against the next collapse without destroying confidence in the
dollar?
The answer’s simple: They can’t.
That’s why, after the Big Drop, the system won’t get an-
other chance.■ “it Can’t Happen Here”
People tell me all of the time that these sorts of scenarios can’t
happen here.
I have to remind them that it has happened here. I point
out that the international monetary system has collapsed three
times in the past hundred years — in 1914, 1939 and 1971.
The global financial system has come very close to complete
collapse twice in the past 16 years in 1998 and again in 2008.
The stock market also dropped 22 percent in a single day
October 19, 1987. That would be the equivalent in today’s
terms of the Dow Jones dropping four thousand points.
Not forty, not four hundred, but four thousand points. The
Mexican Peso Crisis in 1994, the dotcom bubble, the NASDAQ
collapse provide more examples — sending the stock market