The United Kingdom’s stock market is down on its luck and is falling heavily. Brexit is a disaster, you might say. So why wouldn’t the UK stock market crash? But global markets are crumbling too, and the reasons are not glaringly obvious. Stock markets crash. They always have and always will. Crashes are market disasters where all kinds of things get blamed for why trillions of dollars of wealth have been destroyed overnight.

A crash is part of a ‘recovery, boom, bubble, bust’ cycle, and is created by the so-called ‘economic cycle’ meant to have been conquered by wise governments in the 1990s. Of course, the financial crisis of 2007-2008 put paid to that idea, and to some it emerged that it was not so much the economic cycle at play, but the doing of financial innovation.

We are at such a financially engineered moment now.

To dig the world out of impending financial implosion from 2007, the central world banks finally realised the only way out of their dire predicament was to consider their liabilities – in the form of debt – as an asset. They would buy their interest-paying debts back with their no-interest-paying debt. To us this means buying their bonds (and others) for cash or cash equivalents. The oceans of government debt usually seen as a horrible millstone around everyone’s neck turned out to be a way of pulling cash out of nowhere to defibrillate the global financial system.

It was a way, in effect, of turning sluggish savings into hot flushing cash. This was how the central banks pulled the world’s finances back across the event horizon of a huge crash. This process, called Quantitative Easing (QE), was also called ‘unorthodox monetary policy’ – which to many meant ‘we have no clue if this is going to work policy’ and to some ‘we have no idea how this policy turns out’.

It worked, but the unwinding of this financial innovation is crashing the stock market and is likely to throw the world into recession.

The trouble with a government buying its debt back and handing out cash is not, as many ’experts’ predicted, inflation, but instead the resulting mountain of assets and liabilities acquired by its central bank from executing this policy. Through its QE programmes, the US Federal Reserve built up a balance sheet of $4.5tn. According to many, this is a good thing, and the ‘orthodox’ solution to this is to unwind the position to get back to old-school levels of a balance sheet many trillion dollars smaller.

Now, as a science-based person you must be thinking that if the process that built the recovery is going to be run in reverse then the opposite effect will occur. If the Federal Reserve does the reverse of QE, it will pull the world into recession. You might think even a 12-year-old could work this out, and as President Trump recently put it, they should “Stop with the 50 Bs” – $50bn being the current monthly amount of QT (Quantitative Tightening).

Therefore, the global markets are crashing. The attack of the ‘50 Bs’ is draining the fetid but fertile financial swamp.

New money, especially the dollar, doesn’t stay at home. It flushes around the world looking for the best return. The safer the environment, the further afield it travels to get a higher if riskier return. Reverse-QE or QT drains money back to the core away from riskier opportunities at the edge. As the tightening started in November 2017, the emerging economies were the first hit, and after a year of increasing amounts of QT the impact has reached the US and European stock markets.

To the chagrin of many, it is not the genius of people or their righteousness, the veracity of their opinions, or the power of their will or philosophy that makes the world go round. Money, the nigh-complete proxy for everything, remains the fuel. When money is coming in, we can party on and our gambles pay off. When the money is draining away, we go hungry and our gambles collapse for want of the liquidity to keep them winning.

On such a tide we are now afloat.

There is, however, a big opportunity most will not see. When this crash is over, whether it’s minor or significant, as I predict, someone brave enough can pick up solid assets at bargain basement prices for a great long-term profit.

Crashes are an opportunity you will perhaps see three or four times in your life to climb the financial ladder. This will be one of those opportunities. Such a courageous person should remember not to try to buy the bottom of the crash, but instead wait to buy the beginning of the recovery. This will come weeks, even months after the crash has done its worst. While the majority will be whining, a small minority will be winning.

The United Kingdom’s stock market is down on its luck and is falling heavily. Brexit is a disaster, you might say. So why wouldn’t the UK stock market crash? But global markets are crumbling too, and the reasons are not glaringly obvious. Stock markets crash. They always have and always will. Crashes are market disasters where all kinds of things get blamed for why trillions of dollars of wealth have been destroyed overnight.

A crash is part of a ‘recovery, boom, bubble, bust’ cycle, and is created by the so-called ‘economic cycle’ meant to have been conquered by wise governments in the 1990s. Of course, the financial crisis of 2007-2008 put paid to that idea, and to some it emerged that it was not so much the economic cycle at play, but the doing of financial innovation.

We are at such a financially engineered moment now.

To dig the world out of impending financial implosion from 2007, the central world banks finally realised the only way out of their dire predicament was to consider their liabilities – in the form of debt – as an asset. They would buy their interest-paying debts back with their no-interest-paying debt. To us this means buying their bonds (and others) for cash or cash equivalents. The oceans of government debt usually seen as a horrible millstone around everyone’s neck turned out to be a way of pulling cash out of nowhere to defibrillate the global financial system.

It was a way, in effect, of turning sluggish savings into hot flushing cash. This was how the central banks pulled the world’s finances back across the event horizon of a huge crash. This process, called Quantitative Easing (QE), was also called ‘unorthodox monetary policy’ – which to many meant ‘we have no clue if this is going to work policy’ and to some ‘we have no idea how this policy turns out’.

It worked, but the unwinding of this financial innovation is crashing the stock market and is likely to throw the world into recession.

The trouble with a government buying its debt back and handing out cash is not, as many ’experts’ predicted, inflation, but instead the resulting mountain of assets and liabilities acquired by its central bank from executing this policy. Through its QE programmes, the US Federal Reserve built up a balance sheet of $4.5tn. According to many, this is a good thing, and the ‘orthodox’ solution to this is to unwind the position to get back to old-school levels of a balance sheet many trillion dollars smaller.

Now, as a science-based person you must be thinking that if the process that built the recovery is going to be run in reverse then the opposite effect will occur. If the Federal Reserve does the reverse of QE, it will pull the world into recession. You might think even a 12-year-old could work this out, and as President Trump recently put it, they should “Stop with the 50 Bs” – $50bn being the current monthly amount of QT (Quantitative Tightening).

Therefore, the global markets are crashing. The attack of the ‘50 Bs’ is draining the fetid but fertile financial swamp.

New money, especially the dollar, doesn’t stay at home. It flushes around the world looking for the best return. The safer the environment, the further afield it travels to get a higher if riskier return. Reverse-QE or QT drains money back to the core away from riskier opportunities at the edge. As the tightening started in November 2017, the emerging economies were the first hit, and after a year of increasing amounts of QT the impact has reached the US and European stock markets.

To the chagrin of many, it is not the genius of people or their righteousness, the veracity of their opinions, or the power of their will or philosophy that makes the world go round. Money, the nigh-complete proxy for everything, remains the fuel. When money is coming in, we can party on and our gambles pay off. When the money is draining away, we go hungry and our gambles collapse for want of the liquidity to keep them winning.

On such a tide we are now afloat.

There is, however, a big opportunity most will not see. When this crash is over, whether it’s minor or significant, as I predict, someone brave enough can pick up solid assets at bargain basement prices for a great long-term profit.

Crashes are an opportunity you will perhaps see three or four times in your life to climb the financial ladder. This will be one of those opportunities. Such a courageous person should remember not to try to buy the bottom of the crash, but instead wait to buy the beginning of the recovery. This will come weeks, even months after the crash has done its worst. While the majority will be whining, a small minority will be winning.