Why are markets falling?

Trend: Markets are falling as central banks address some tough, persistent economic realities.

John Mauldin offers some compelling reasons for the drop in equity markets: rising interest rates, rising inflation, and tough language from the central banks.

Source: InvestorsInsight : Thoughts From The Frontline

...here are the worst performing 20 markets through Thursday.

By contrast, the broad US markets have held up relatively well. The Dow is off around 6.4% from its high, which hardly qualifies as a decent correction, and the NASDAQ is down by 10%.

...In short, the central banks of the world are taking liquidity out of the system. It was the providing of massive amounts of liquidity that had driven asset prices around the world to frothy heights, and now we are seeing what happens when that process goes into reverse. It wasn't like we didn't have any warning. They made it very clear.

...Japan was the primary provider of cheap liquidity. It was a result of their desire to rid themselves of the demons of deflation. And now they apparently have.

...Is it any wonder that hedge funds are scrambling to find the exits?

...a now prescient paragraph from a speech by Alan Greenspan last August...."Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

...We are watching risk premiums reassert themselves in markets around the world. This process is hardly over.

...Easy Al knew when to leave, and Gentle Ben has to pick up the pieces of what was a very long and very accommodative monetary policy, both here and in Japan. And in the case of the US, all the inflation that is now starting to show up was created on Easy Al's watch.

...inflation, in the things that really matter to you and me, is very much present.

...For the last 30 years, new Fed chairmen (Miller, Volcker, Greenspan) have felt the need to prove their mettle. And it has resulted in a lower stock market. It looks like this time will be no exception.