http://finance.yahoo.com/tech-ticker/article/315700/%22It-Could-Get-Ugly-Very-Fast%22-Banking-Crisis-Grows-FDIC%E2%80%99s-Funds-Shrink

“The failure of some of the nation’s largest banks in 2008, including Washington Mutual, Wachovia and IndyMac, and scores of smaller banks this year came at a price. The Federal Deposit Insurance Corporation’s fund that insures the country’s deposits now stands at $10.4 billion, down from $45.2 billion the prior year.”

The move up in the Financials and Housing stocks could be a real good indicator of a Market Top being created as the last specualtors pile on … lemmings before a waterfall ….

And, “is there anything that could possibly derail your incredibly pessimistic scenario?” “Ahhh, no.”

The point about Bernanke and any Fed member being a puppet is right on. These guys, like almost all politicians save Ron Paul or a Rockefeller or two, are just puppets of that crew in the lifeboat.

The main case for the resumption of the crash implies a somewhat different view of exchange-based prices than Faber presents here. It is not so easy for the Fed or any governmental body to manufacture optimism. Money, yes, but not what people do with that money. Right now, to steal a line from Mish, banks are acting responsibly for the first time in ages, because they are not lending. The new money is just sitting on deposit with the Fed earning risk-free interest.

Sentiment, plain old fear and greed, are what drives markets. For everyone save a few giant money center bankers, money is still exceedingly scarce and more so all the time. The printing is scary for your average investor, so he may be interested in hard assets in the market, but when he loses his job or his income otherwise drops and his debts stay the same and he can’t refinance, his bit of fiat money is more valuable to him than ever before in his life. He’s still going to be prone to panic in the markets. The dollar may someday go the way of the Weimar deutchemark, but it’s still a dollar for now.

The waves of sentiment are key: we are at very high levels of market optimism here, despite a continued deterioration in the real economy. Market optimism must wane soon, simply because it has very little room on the upside. When traders swing from optimism to pessimism, the market falls, simple as that, no matter what monetary machinations are going on. With the general trend toward deepening pessimism (IMO), the stock market will eventually fall until it finds fundamental support in terms of dividends: people will want to be paid for the then universally accepted risk of high capital losses. That’s how secular bear markets bottom.

That could happen in a couple of years at very low prices, maybe 150-200 on the S&P (about a 7% yield on say $10-15 dividends), or many years from now at higher prices, after earnings have increased from the inflation that follows deflation (whenever that may be). The first outcome was 1932 (3 year deflationary bear market), and the second was 1982 (the end of a 16 year inflationary bear market). Both bear markets delivered solid yields and values in the end, and both fell about 80% in real terms, though one fell 89% in nominal terms and the other only fell about 20% (if you count ‘82 as the real low and not ‘74, the nominal low).

I just checked historical CPI here: http://inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx?rsCPI_currentPage=6

CPI was 17 in 1929 and 13 in 1932. That was a gain of 30% in purchasing power, as the Dow fell from 381 to 41. Real loss: 86% if you sold in late June/early July 1932.
CPI was 32 in 1966 and 96 in 1982. That was a loss of 2/3 in purchasing power, as the Dow fell from 1000 to about 780. Real loss: 74%.