The actual answer is any correction of 20% or more would generate some too-big-to-fail propaganda which would trigger the next phase of the crackup boom. The politicians would be pounding on the Fed to print so they can spend as they would declare Keynesianism to be law of the land and various peoples would make sure dollars stay in demand worldwide.
Personally I think we have a bunch more moderate correction / Keynesian bull market phases ahead of us. Even looking at the chart above, it looks pretty strong to me on a purely technical basis.
Actually ..... the reality is that since the repeal of Glass Steagall and the creation of 401ks, Roth IRAs and other assorted Wall St. flavorings, and the ability to direct required contributions to a menu of stocks and indices offered by financial services such as Fidelity and others that are joined at the hip via leveraged accounts with Fed Member Investment Banks, the stock market must be floated higher and higher to pacify the growing aged population of retirees or soon to be retirees.
In other words, the original purpose of stock exchanges has been supplanted by social policies that steer the Fed to concoct pathways to capital markets for its preferred members and the result is a bubble in stocks.
There is also the necessity to keep the lid from blowing off on interest rates which would otherwise throw the federal government into a downward spiral of chaos. Low interest rates spur 401k managers to allocate a portion of their aggregate portfolios to stocks and/or encourage account holders to do the same.
As was posted years ago by this poster with other Freepers, the purpose of these bubbles is to:
1. Pacify the senior demographic
2. Keep the Federal government solvent.
Other ancillary purposes involve creating an inflationary environment by design to extinguish toxic debt left that remains from the subprime collapse.
I personally do not believe the currency is so much at risk as is the destruction of free market dynamics which are practically irrelevant these days. In other words the ‘market’ is not a market, it is a rigged flow process driven by Fed policy. What are the consequences if a false market without a free supply-demand dynamic? Of course there will be some specks of supply-demand dynamic here and there but they are mere ripples compared to the waves caused by the Fed Reserve’s enormous money engines.
Destruction of supply-demand volatility is the result of allowing a centrally planned economy. This puts the USA on the fringe of socialists-fascists who believe that it is government that makes things work. What does the USA look like without free markets?
The stock market ceased to be a symbol of free market capitalism many years ago. It is rigged by Fed policy and by clever tech traps such as HFT flash trading and dark pools. In short, it is today a farce.
What is relevant to the dynamics of the policy today is the national debt that the Fed itself holds. This debt is much much higher than that held by foreign governments or domestic entities. And the Fed if it is inclined can just ‘delete it’. The only US debt that must be paid are on notes to foreign and domestic entities (non-federal government debt). More than 10% of the fed govt budget goes to debt service and with higher interest rates that 10% would explode.
So what are the consequences of a Federal Reserve hitting the delete button on US Debt that it holds? This would be an engineered US bankruptcy with discharging all debts held by the Fed Reserve to the United States. Would there be a devaluation? I don’t think much. That’s the good news. Of course the prestige of the USA as a free market wonder of the world would be take a hit. But today academics and politicians are inclined to throw their hands in the air and express a general sentiment “who gives a frick?” because they and we don’t know the consequences, yet.
The real consequence is what is called the moral hazard. And that is in the eye of the beholder. We don’t know where we are going, we are in uncharted waters. But one thing is certain, if the USA becomes a second rate nation with no force of attraction, the currency will collapse.