I was on wall-street for forty years and traded through several crashes and bear markets. This one has similarities to the others but is different in an important way.

1987 was technical, kicked off by too much portfolio insurance resulting in the unwind of the Japanese carry trade. The Japanese were buying everything from Rockefeller Center to Pebble Beach with a bunch of stocks in-between. When the market started going down, they puked it all out. But the economy was fine and the market recovered.

1998 was technical, Long-Term Capital loading up wall-street firms with heavily levered swaps that cratered, dragging down the market as that whole mess unwound. But the economy was fine and the market recovered.

2000 was a dot-com craze, valuations reaching ludicrous speed. When gravity pulled all that worthless paper down, sellers had to raise cash in the SP500 to satisfy margin debt. But the economy was fine, sort of, and the market recovered.

2008 was a banking crisis, financial companies carrying ridiculous leverage on their balance sheets that wiped out their capital with bond and derivative losses. FASB literally had to relax the rules on mark to market to save them. Today banks still don’t mark their bonds to market and many need a contra valuation account to balance the books. The Fed had to create a facility to lend banks money at par to calm the markets.

The economy wasn’t fine, but they changed the rules and shot the economy full of drugs to get it going again. The Fed’s balance sheet went from $800 billion to $12 trillion buying those drugs. We have been addicted to those drugs ever since.

But addiction can’t go on forever. Today’s bear market is a relapse of 2008. Do you think the banks really reduced their leverage?

Years, no decades, of inflation created by the Fed has hollowed out the middle class and left everyone from the government to Aunt Sallie with gobs of debt. From Greenspan all the way down to Bernanke, the Fed kept real interest rates negative, which is good for the rich and bad for the poor.

Just like food prices, stock prices have risen mostly due to inflation.

At the recent highs we had egregious stock valuations. They are still high, and certainly not at a level where we see the end of bear markets. We probably have another 30% down before that happens.

Debt doesn’t go down with stock prices. As collateral gets impaired selling occurs. We are in the middle of that.

A recession, which is just beginning, makes income go down and bad debts go up.

A trade war is like fuel on this fire. Tariffs are like trying to hit a golf ball with a sledgehammer or maybe even shooting yourself in the head. They won’t bring back manufacturing to the U.S. and they will only hurt the consumer.

The government’s track record of trying to control the economy is abysmal. The Libertarians have it right. You don’t have to go into philosophy to conclude that, just look at the state of affairs our economy is now in.

The nanny state is the largest employer in the country. Spending programs have grown to gargantuan size and all that money supporting them is borrowed. Government debt is now around $35 trillion and the interest on it is untenable. When the Fed prints money, it has to get into the economy somehow. The Fed now owns a third of the national debt with printed money. This keeps rates lower than they would be otherwise and gets the money into the economy through government spending. Too much money spent foolishly creates inflation.

The Fed had to stop buying that debt a few years ago when inflation went out of control. That’s why the one-year treasury shot up from 2 to 4 percent so quickly.

Bulls are saying rates have come down like they should as the market corrects. That’s not correct. Nominal rates may have come down, but real rates are what counts, and they have shot up. Investment is made on real rates where there is a relationship between costs and returns. The bottom line is the Fed kept real rates negative for far too long and now positive real rates are a boogey man. They shouldn’t be.

This bear market is similar to others in that it is the result of over-leverage. But it’s different because the economy is not fine. Decades of manipulation have driven the economy to the head of a pin. Any stimulus creates inflation. Without it we have a recession.

This bear market is a correction of all that manipulation. It should bring prices down, not just in stocks but in just about everything. A deflation is a correction of the massive inflation we have had over the years.

My bet is the stock market corrects more, a good deal more. I’m not short, but I am in mostly cash. At the bottom that cash will be worth more. The dollar will get stronger.

Unlike other bear markets that turned back into bull markets, this bottom will last for a while.

Disclaimer: The information contained in this article is for informational purposes only and should not be considered as investment advice. The information presented in this article should not be interpreted as a recommendation to buy, sell or hold any security or investment. Before making any investment decisions, it is important to do your own research and seek advice from a qualified professional. Investing in securities and other financial instruments carries a high level of risk and may not be suitable for all investors.