The conditions have now aligned for a repeat of the major stock market crashes that have occurred since the founding of the US Federal Reserve Bank (Fed) in 1913. Considering their vast experience and resources, the Fed has to know that their plan to control inflation by raising interest rates rapidly and significantly since 2022, and also tightening credit this year, will likely result in another major crash. Although the Fed has issued vague warnings about the impending pain on the stock market and economy, they have not explained how and why they will again wipe out trillions of dollars of wealth of unsuspecting investors.
As Marty Zweig, a successful Wall Street investment adviser known for data studies, warned, “Don’t fight the Fed,” because the central bank largely controls the direction of the stock markets. Generally, the major stock market booms start with the Fed stimulating slow economic growth by lowering interest rates, often while the government increases deficit spending. As Austrian business cycle theory predicts, this results in asset price inflation (e.g., stocks, houses, etc.), and sometimes also consumer price inflation. The major busts result when the Fed seeks to control the inflation by raising interest rates significantly, while the government reduces deficit spending.
The following graphs demonstrate the strong inverse relationship between the Dow stock market index and interest rates largely set by the Fed (i.e., stocks values inflate when interest rates are lower and deflate when higher). The top graph from Macrotrends shows the Dow Jones stock market index on a logarithmic scale and adjusted for today’s dollars over time. The bottom graph from the Fed shows interest rates over the same time. These graphs can be used to locate the major stock market cycles and analyze the effects of interest rates along with deficit spending in causing booms and busts.
Figure 1: S&P 500 versus federal funds rate
The Dow Jones stock market can be considered to be in its sixth major boom and bust cycle. The first cycle had a 1913–15 boom and 1915–20 bust. The second cycle had a 1920–29 boom and 1929–32 bust. Then, there was a 1932–50 period that was effectively absent of major booms that could go bust. The third cycle had a 1950–65 boom and 1965–82 bust. The fourth cycle had a 1982–2000 boom and 2000–2002 bust. The fifth cycle had a 2002–7 boom and 2007–9 bust. The sixth cycle had a 2009–22 boom and a bust starting in 2022. The five major stock market crashes can be considered to have started in 1915, 1929, 1965, 2000, and 2007, with another likely in 2022.
1915—As the Fed started cutting interest rates in 1913, the Dow stock market climbed and peaked in 1915. That year, the Fed started raising rates and the stock market dropped in 1916. During 1917 and 1918, deficit spending for World War I, while interest rates were flat, caused rampant inflation and a spike in stock prices. After the war, the Fed rapidly raised interest rates in 1920 to cause a stock market crash and the depression of 1920–21.
1929—After the Fed cut interest rates from 1921 to 1925, the so-called roaring ’20s brought a booming Dow stock market from 1921 to 1929. After the Fed started raising interest rates in 1927, the stock market crashed in 1929 and the economy tanked. During the 1930s, the Fed cut interest rates, but President Franklin D. Roosevelt resisted deficit spending after 1932. The Fed even raised, before lowering, interest rates in 1935 to cause stock market losses and the recession of 1937–38. These policies prolonged the Great Depression until World War II, if not longer.
1965—Deficit spending during World War II, along with low interest rates during and after the war, helped bring a postwar boom with economic recovery, consumer price inflation, and stock market gains. During the late 1960s and 1970s, the government accommodated inflation by raising interest rates slowly over a relatively long time period. This caused a long, flat stock market with sharply declining real values (due to inflation) from 1965 to 1982. Finally, the Fed raised interest rates rapidly and high around 1978 to cause a severe recession in the early 1980s.
2000—After 1981, the Fed started cutting interest rates and the government increased deficit spending, especially on defense. The stock market boomed. The Fed raised interest rates starting in 1993 and even higher in 1999 to stop what was claimed to be the “irrational exuberance” of the booming stock market, while the US government ran budget surpluses from 1997 to 2001. The stock market, especially tech, crashed in 2000, and the economy receded during the recession of 2001.
2007—In 2001, the Fed started cutting interest rates and loosening credit on home loans while the government increased deficit spending. The stock market boomed back to its prior peak (in 2000) and home prices inflated. From 2005 to 2008, the Fed raised interest rates and the government decreased deficit spending. In 2007, the stock market and home prices crashed. The economy suffered through the Great Recession until 2009.
2022—Since the start of the Great Recession in 2007 and until 2022, the Fed has lowered interest rates to near zero while the government increased deficit spending. This has accommodated asset and consumer price inflation. Since March of 2022, the Fed has quickly raised interest rates by about five percentage points.
Today, the Fed is clearly still concerned about the inflation. However, higher interest rates have already led to a financial crisis among the banks. Experiences with past markets indicate that, if the Fed continues to fight inflation, the stock markets will likely crash, like they did twice in both the early 1900s and early 2000s. If the Fed gives up their inflation fight, the stock market will likely gradually fall in value over many years if not decades, like they did after 1965.
There have been some other large, but less significant, stock market declines. The crashes in 1917, 1941, and 2020 were caused by fears of wars and a pandemic but were soon reversed by lower interest rates and massive deficit spending used to meet the aggression. The crashes of 1937 and 1946 and subsequent recessions were preceded by rising interest rates and limited deficit spending, but 1937 was part of the recovery from the Great Depression while 1946 was soon reversed by the exceptional postwar boom. The crashes in 1968 and 1972 were preceded by rising interest rates and limited deficit spending but occurred within a major crash. The crash of 1987 was preceded by rising interest rates and reduced deficit spending but was a brief and steep up-and-down blip within a major boom.
The graphs indicate the major stock market crashes have always resulted when, and only when, the Fed has responded to inflation by raising interest rates by three percentage points or more, while the government reduces, or at least doesn’t significantly increase, deficit spending. There has never been a so-called soft landing, and the graphs indicate a so-called Fed pivot, which has usually arrived after the crash. The graphs also indicate the 1915, 1929, 1965, 2000, and 2007 crashes caused Dow stock market index losses of 59, 85, 71, 35, and 49 percent. The losses were not recovered until eleven, thirty, twenty-nine, eight, and six years after the start of the crashes, respectively.
The government has responded to the major stock market crashes, with the exception of 1929, by lowering interest rates and increasing deficit spending to gradually pump stock prices back up and eventually even higher than before. There is no guarantee that this will happen again, especially with the political far right threatening to repeat the policies that prolonged the Great Depression by restricting deficit spending.
Stock markets are unfair to uninformed and amateur investors since they are rigged by the Fed and government without transparency. Informed stock traders and insiders can earn far greater returns by selling stocks high before the stock market crashes. They can also profit by buying low later if they are assured that the government will bail out the market with low interest rates and deficit spending. Moreover, the stock markets will be unsustainable as soon as most investors realize that they are rigged.
Monetary and fiscal manipulations, currently needed to stimulate stock markets and pull economies out of recessions, should be replaced by something else, like effective deregulation of free markets.
About the Author
Mike Holly received Master degrees in Business Administration and Chemical Engineering from the University of Minnesota in 1980 and 1983, respectively. His health care article published on Mises Wire is an updated and condensed version of his MBA thesis. He did his internship at the Minnesota Department of Health where he invented an ambulance allocation model. After receiving his chemical engineering degree, he worked as an Alternative Energy Engineer and Business Analyst with the Minnesota Department of Energy and Economic Development from 1984-5. In 1985, he co-founded Sorgo Fuels and Chemicals, Inc. to develop technology for the production of various products from an agricultural crop, but was blocked by preferential government policies favoring monopolies and also production from other resources. In 2016, he founded Americans Against Monopolies to catalog the preferential government policies favoring monopolies in virtually every major U.S. market.
Article cross-posted from Mises.
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.
