Markets break down - Dow plummets below 9,000

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41

Without knowing the particulars, because though I trade FOREX, I’m an economic know nothing. However even my very basic understanding had me scratching my head and wondering how this could possibly continue w/o some sort of collapse. I’ve been saying this to friends for a couple years, who’d just laugh at me…they don’t laugh anymore, let me tell you. I began learning Krav Maga and Spanish soon after, 2 skills I’m afraid may be very useful. I feel certain that if we are faced w/ a depression that not only will there be violence, starting in the urban centers and then spreading out, but that the Union will likely not survive. Let’s face it, at a minimum we’re 2 nations w/ little in common except for the dollar and once gone, there’s nothing approaching national unity to hold it together. THANX KARL ROVE!

 

I’m right back to thinking that if we’re facing hyper-inflation…why am I knocking myself out paying off my credit cards?

42

a good point Xflies, would good to remain constructive

I think the solution would have been to leave the entire mess alone and let the markets self correct with no bailouts, and then work aggresively at legislating a plan to help the central bank, the governemnt right out of debt, right along with the American people.

Now that untold sums of money have been thrown in, and the government owns large segments of the economy, I am not sure that anything can come from that except a delay of a true market correction.

If the real problems are not addressed, i.e. deficit spending, central bank influence over the money supply, money creation, fiat money, the whole list that Chris laid out for us, then I do not really know how the system can be saved.

I guess throwing money at it really is the best solution for this shoddy system.

You know I saw Zeitgeist the other day. It is obviously biased and very conspiratorial and in my opinion not to realistici in many of its assumptions, and very biased to one political party and its frame of thought, but one thing I really admire it for is simply: it asked questions no one is asking. Zeitgeist came to many of the wrong conclusions, but great job asking tough questions. How beneficial that would be if we all demanded that of our government.

What ever happend to a moderate point of view, why is everything so extreme, whether its politics, fiscal, and monetary policy. Defies my way of thinking. How come the best of both ideas and both sides cant be incorporated to make someting better. Why does one side always point the finger at the other.

G

43

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It seems like all man made currencies have en expiry date…i.e. the go back to zero…Look at history if don’t beleive me!

Do we still have money from the Roman Empire or Babilonia Empire’s…??

The diffrence between man made money and God money is that the latter will be only in demand when the masses have no ther option and/or when it’s too late to rely on man made currencies…

History will repeat it self so…if you are very wealthy and reading this …then you are better off buying gold…

if you are not so wealthy and reading this…then Silver is a better option even though its at $11/oz "right" now…and predicted to go up…

All you history scholars can debate and/or discuss this if you would like

 

Alex.

45

I agree. No conspiracy. Real conspiracy’s are very rare. Economic blindness within the market that can be construed as conspiracy, however, is very common.

Amish way of living? Certainly not. GDP fall by as much as 50% within a frame of a year (or two)? That’s a different story. Though, I’d point out a per capita GDP of 22k isn’t exactly uncomfortable. It’d be quite different though.

There is no real chance.

We missed the best window. Faith in the government is now destroyed. World around financial advisers have proven they don’t know what to do. It is just too late.

The best we can hope for right now is a short and small rally buying time for the system to recover. However, given that Credit Default Swaps from Lehman brothers (the first real losses thus far) just begun processing today…

If we are really lucky, the Fed and Treasury will announce a bank Triage plan tomorrow and implement it over the weekend.

Oh, I’m scared. I’m scared its this bad and I know the big shoes – government’s start defaulting, make severe spending cutbacks, let the ‘saved’ institutes die, and then spend the rest of the depression in the proverbial corner – haven’t even started falling.

Don’t get me wrong. I knew it was going to be bad. But its one thing thinking it, another seeing it and starting to wonder if your pessimistic views were, in actuality, optimistic.

Here’s a positive for you though. We won’t starve to death, and we’ll still have the internet! Tongue out

Oh, and we’ll get a new president soon. One that, given the utter incompetence of Bush is practically guaranteed to be 3x better Republican or Democrat.

And uh, oil is going to fall. For now anyway.

–

Steve

46

Markets in these conditions don’t self correct. Here’s a decent article in part addressing this super idealogical delusion.

At this point, our best bet is to rush the system to the bottom while taking actions to guard with whatever force necessary the definitely alive institutions from resulting nuclear fallout. Then, if our government can still scrounge up any funding at all, pick up the shattered pieces of our economy. Waiting for it to self correct will give this mess time to destroy many healthy institutions that could otherwise function.

–

Steve

47

Thanks for that post… I didn’t want to sound like the ‘bad’ buy by criticizing the readers of this site… I personally have learned much and only want to see this site become the place to be when the average person wants to see what’s happening to the financial world. Instead of pointing to a particular post, I wanted to just make the point that people should remain independent thinkers and be willing to ask questions, debate and act. When things get too ‘one-sided’ we all lose out but I have to agree that things look pretty bleak. But here, to start things off, how about this positive:

While banks don’t want to lend to one another at this point, the Fed has yet to spend a dollar of it’s TARP program. If I were a bank, I wouldn’t want to lend precious money to any other counterparty until I was able to shore up my capital base first. If this TARP program would allow me to dump some of my more ‘risky’ assets then maybe, just maybe I’d open up a bit and start lending. In fact, if I knew that the other counterparties were doing the same, I would be more comfortable in lending to them as well. Just as quickly as it spirals down, it can come back. Now… to the issue of increasing money supply… there is NO increase to money supply until these positions get closed. In the meantime they are cashflowing assets and as they get impaired as I’m sure they will, the losses will be crystallized and then the money supply has officially increased. The fact that banks get cash for assets that no one knows where to mark them doesn’t allow them to go out and make more crazy loans… this cash will be used as part of this whole deleveraging tsunamis. The key will be what level the gov’t buys these assets at. The higher the #, the higher the stock market will go but the more the taxpayer will have to pay so it’s almost like a shift of wealth shell game. The real estate losses are finite, the goal is to contain the damage to just be in certain sectors. It’s the division of these losses that I think are important to the way the market reacts. Personally, I would rather see them pay on the slightly higher side of things but not too high that the public would overly criticize them for, but it would give a huge boost to the markets. Keep in mind that wealth destruction not only in real estate but in the markets has a huge deflationary impact on everything from consumer spending to pensions to taxes etc…

Ok, flame away but I was just trying to start something here… as wrong as I may be, I am attempting to look at both sides.

48

Hi MaxThrax-

Like you, I have a good credit rating.  I've always been good about paying off credit cards quickly, and have been careful not to take on too much debt (we live well within our means).

However, when the crap really hit the fan with the economy recently, I took one of Chris’s comments to heart: that in some (not-too-distant?) future, we may not have the opportunity to buy/get a lot of the things we take for granted now. As a result, I came to a different conclusion than some of the other folks who have responded to you. While I do agree with them, that staying out of debt is a good thing to do (and Chris also advocates that), I think that also has to be balanced against the perceived reality of the situation that we are up against.

The way I see it, this time -right now- is potentially a very special, VERY limited time opportunity. Our credit cards still work. Our local stores are still stocked. We do not yet have to fight mobs to get what we want/need at stores. In addition, the things we want/need may NOT be available to us later. So given that, I decided that I would use my credit card for some things that I really don’t want to be without if everything goes to hell. E.g., I bought clothes for my child in the next couple larger sizes (boots, socks, winter coats, etc.). I bought books on how to live self-sufficiently (if it comes to that, I at least want some good advice to lean on!). I bought a good water purifier ("lifesaver" bottle; it supposedly can even filter viruses out of water).

Do I like accumulating debt on my credit card right now? No, I really don’t. And I do not think it is a good idea to charge things frivolously. But for me, it felt like charging those essentials, and not charging anything frivolous (ok, except maybe the bourbon) was the right trade-off to make.

If I keep my job, I will be able to pay this off over time.  If I lose my job, and if things get really, really bad, I don't think I'll regret having bought  some basic essentials we'll need to cope with that situation.  I guess we each have to figure out what makes sense for our situation.



Good luck,



C
49

I’d point out that the Treasury is now leaning toward using a major part of the ‘bailout’ to directly recapitalize these banks in return for equity (the method largely favored by economists). Apparently some cunning senator snuck a provision allowing this into the overly large bailout bill. (We know it was snuck in, because the Republicans would never allow something so socialistic)

I guess it goes to show that sometimes those rules used to destroy our democracy and impoverish the people get twisted and used for the common good. Wink

As a side, recapitalizing if more favorable because:

1) It can address Insolvency (without screwing the taxpayer)

2) It is much simpler from an execution and oversight perspective. It is much harder to corrupt (because it is simpler).

3) Provided the bank doesn’t die anyway, the taxpayer is practically guarenteed to get his money back… eventually (might take 20-30 years…).

–

Steve

50

They are loan sharks. If you’re late once by a minute their (depending on the state) policy allows them to jack up your rate to 30-35%. If you ever get in a situation where you’ve been late or cannot make a payment for a month then you’re looking at paying off your cards at a 30% rate of interest. Even if you do pay your credit cards when you’re strapped for cash and only make the min. payments then your credit score will go down. If you use more than 50% of your avail. balance your credit score goes down. By this time your credit score will be useless at 600-650 and you will not be able to increase your score until you have the reverse (lower than 50% and more than min.) happen. How long will that take you at an avg. rat of interest at 25% ? 30 years maybe? Get the essentials and buy with cash. That is what you should’ve been doing from the beginning. You should be using your credit card companies, not the other way around. The only card you should have is the American Express- Gold, that you must pay off every month, to keep a history of good credit. That’s a way to use them. They are using you if you are making interest pmts. to them. They know that the chances are likely that in your history of doing business with them you are bound to default and that is where they trap you! You’ll want to pay them, but don’t. If you choose to default on your cards make sure you have "updated" (give them false numbers) your phones numbers with them because they will harass you at least 7 times a day and will most likely call your employer (whatever info. you gave them on your app). There is no reason why they cannot communicate with you through postal mail. Harassing you is the most likely way a creditor gets paid by you. Don’t let them do that to you. If you’re going to default on your cards, make sure they are charged off before you settle with them (or collection company). They will make a deal with you, by mail, to have you pay only a fraction of your outstanding debt, e.g. they most probably will negotiate a $1000 balance with you down to 30% of that balance or $300. When you pay that off it will show "paid in full" on your credit report. If you have been married for more than 7 or 8 years then your spouse’s credit is combined with yours and you both have the exact same credit score. If you affect yours then you affect hers as well. In that case, don’t think you can screw yours up and not have it affect your spouse’s credit. It will! Before you do this make sure you have everything you need such as cars and etc. that depend on your credit.

Caroline

 

51

Greetings,

Below is a copy of a letter I wrote to an economist in response to his blog. I wrote this letter in September of 2007 and what I said then, I believe, holds true today. Oh yeah, Mr. Whitney was actually kind enough to write me back and I included his response below my letter.

 

Mr. Whitney,
I’m not an Economist but I was a History Teacher in my younger days. Using history as my guide, I would like to offer my predictions as to what lies ahead for us.
Three possible events are awaiting us: hyperinflation, deflation or stagflation. Which ever one we get, deflation, stagflation or hyperinflation, we’ll get because it will be the most catastrophic of the three.
Hyperinflation is a great way to erase wealth but since we no longer have any savings in our bank accounts or equity in our homes, we have no wealth to erase. Actually, the debt ridden consumer would be given a "get out of jail free" card should the government begin printing money like crazy. I actually have Weimar Republic currency and stamps worth billions of worthless marks. I don’t know who they’ll put on the $50,000,000 bill (probably Reagan) but that would easily rid me of all my financial problems. Yours too, I bet. We’ll never see our workers being paid twice a day like they did in Germany.
Somebody will get nuked before you see hyperinflation.
No, what will damage us the most would be deflation. Shrink the money supply just a little bit and the whole house of cards come tumbling down. I do not know a single person that actually owns their home. Most people I know have car payments, credit card payments and student loans. They have mountains of debt, actually, and live week to week. Many are just a sick day or two away from a disaster. Shrink the money supply and they lose everything - house, car and possessions.
Keep in mind, deflation was what the United States earned for its big fun Great Depression. Things were different then with many Americans still living on farms or at least had family that could still function as a self sufficient unit. Furthermore, I suspect that people were somewhat better equipped to take care of themselves. Turn millions of obese Americans into the streets now and we’ll have chaos. There are a lot more of us now and I don’t know anybody on any farm.
I’m not sure our Democracy would come out of that looking much like a Democracy.

Finally, there is Stagflation. I know that stagflation is what most people are hoping for. You know, a little post Vietnam style stagflation with high energy costs and a bit of inflation and stagnant job growth while the housing bubble sorts itself out and the bills for the war come trickling in but I don’t think we’ll get that lucky. As I said, we’ll get whatever event is the most catastrophic.
I’m not sure our current leadership could put together any sort of New Deal style disaster relief. If Katrina is anything to go by, we’re in for a heck of a ride.

Hi Robert, I think we’ll probably get whacked by inflation quickly
followed by panic and deflation. When the overvalued assets in the
stock market crash along with housing —trillions in capitalization
will vaporize leaving us in a deflationary downward spiral. thanks
for your e mail, mike

52

Just when things seemingly start looking better (after $700 bil) the economy will start its recession. They will want to "fix" the economy by shoring up some of that money they pumped out. It gets complicated because we owe so much to other countries. No one knows what will happen, esp. since the financial wizards in the market got it all wrong. Watch Chris’ "Crash Course" and Zeitgeist movie at www.zeitgeistmovie.com.

If the country’s financial system and savings is founded on "credit" aka the stock market, then just like gambling at the casino— prepare to lose it all! Everyone wants a get-rich-quick system but did anyone think about what would happen if it turned out for the worst? The stock market is bad news. Investing is bad news. We just need some free market back. Keep what we need and let die the things we don’t need. Stop "investing" in companies. When you invest, then the people running the companies are the shareholders and their interest is to better the company only if it aligns with their profit motivations. If we didn’t invest in the companies then the companies would have to sustain itself dependent upon the free market, i.e., whether or not you and I still want/need that company around. Maybe then the company would improve based on the need for their existence.

Also, ask yourself why you would invest you hard earned dollars, that you may or may not reap in the future for those investments you could’ve made today? Buy more technological equipment for your children, insulate your house for lower heating costs, purchase more computers for your children, more vacations to just live life, more activities (chess club, game club, etc.) for your children, solar panels, get out with friends and talk to people every day and get to know your community, make it a point to play board games with your entire family one day of the week, purchase and grow fruit and nut trees, growing gardens to trim grocery costs, work out in the garden with your children to teach them invaluable lessons, and etc. But what does happen too often is a family buys a huge plasma t.v. only to face IT and not each other. If that is the biggest family investment of the year, and the rest of your money nests in some retirement account so you can have fun at age 72, then we’ve lost touch with reality.

Caroline

53

I’m trying to wrap my brain around "banking holiday" and hope Chris
might indulge in explaining or describing to us how he thinks this
might work/not work.

I think a "banking holiday" means banks are closed for an unknown
period of time and accounts are frozen. In this day of direct deposit
and online banking I would think that would hurt the average depositor
and exacerbate the problem for average, solvent folk (like me) and
really fuel the meltdown. I am not rich but I live within my means
with very little debt. If I do have
the money to pay creditors (i.e. mortgage) in my checking account but
the money is not accessible to those creditors then we all lose. I
understand trying to prevent a run on the banks but I don’t understand
not being able to access funds to pay bills.

So, how would you envision a banking holiday? Would it affect ALL banks and ALL accounts? If so,how would that help anything? TIA.

54

For people that I’ve read are inherently optimistic and don’t hope for the worst, it is sure surprising that my call for objectivity and good debate hasn’t been picked up. When you lose the ability to see both sides, you are doomed… I threw out a bullish post a while back and absolutely no response. What does that tell you as the average reader? Is there objectivity here? Can you continue to broaden your education by hearing only one side? By the way, I’m bearish on the markets still, I am just going through this exercise because I feel it is so important for people to remain objective and accepting to new data points.

Here, I’ll throw out another bullish possibility… What if the US gov’t or other foreign gov’ts decide to guarantee interbank loans? I’m not sure how they would do that but perhaps you could think of a solution and post it.

 

55

This statement is based on what evidence? Just by definition, conspiracies happen all the time…especially at small scales. In terms of larger political/economic structures, things don’t ‘just happen’…they are well planned and reacted to in concerted ways. The term conspiracy, however, denotes the agenda to circumvent law. What do you call it when powerful individuals/institutions have used their influence to CHANGE the law so that there once illegal actions are now legal? Oligarchy? Fascism? Corporatocracy?

56

Xflies,
You seem to believe that if a person were to be "objective", they would somehow be bullish on the economy and financial markets. That is a strange concept.
I think you’d have to search far and wide to find someone bullish on our situation now. Even the mainstream media has begun to catch on to the fact that this is not just another downturn in a historical cycle.
The reason few people responded to your posts is that most people who post here are very well educated about the challenges our market and economy face. They’ve watched the Crash Course. They’ve read books on our ultra-leveraged, debt-ridden economy. They’ve studied Peak Oil and it’s impacts. They know how resource depletion and climate change are likely to affect our economy. They’re aware of how governments and societies in the past have responded to crises like this.
In short, they see the writing on the wall and they accept it. Your comments remind me of a person standing on the deck of a sinking ship running around looking for someone who doesn’t think the ship is sinking.
I actually am an optimist over the long-term. I think the ultimate result of this collapse is going to be a better and more sustainable world. But I think that transition is going to take a long time (hint: we won’t see the full results of it in our lifetimes) and there is absolutely no way we can get there without a lot of pain.
Yes, it’s possible that someone will figure out a short-term solution that will allow us to limp along for a while longer. But will that do anything to solve the underlying fundamental problems? Will it address the $1.25 quadrillion derivatives bubble? Will it reverse the dependence of our financial markets on infinite growth (which is impossible on a finite planet)?
It is highly doubtful that any of those basic, foundational changes will occur without a massive correction/reorganization. I think most people here would agree; after all, this is a website which espouses that view. Why would you think people’s response would be otherwise?

57

Yep. IMF was out loud and clear, on Cspan, beating the need-for-global-solutions drum.

58

BBC America brief on the markets talked about how the recession proof cigarette stocks were down as well.

59

I wasn’t looking for people to agree with me, it was a call for objectivity and a call for a 2 sided debate. Now if you’re comfortable with just listening and learning from one side of the argument, then so be it… your loss. I am aware of the bubble we’re facing, I am a derivatives trader and have traded CDS, bank debt, prefs, converts, equities… you name it. I am just suggesting that readers on this site would be better served if there was more of a balance of opinions and views rather than it not all being one sided. Yes, the data could heavily point towards one direction and we already know it, but let’s open things up and think hard about what we don’t know or see… this is the only way you can be sure that your original thesis is correct. If you find there are things that oppose your view, track them down… think of the conclusions and branches of possibilities… I was throwing out that view to be different, I wasn’t looking for more lemmings.

60

Xfiles,

I would argue that those that found this site, viewed its contents, and continue to read updates are doing research and I assume that it does not end at this site. What you are narrowly arguing is that there should be ‘equal representation’ even though those perspectives are ‘less equal’ given the data and information. This is akin to the new media ‘fair and balanced’ spearheaded by Fox. All opinions are not equal. Next, just because nobody responds to your posts does not mean they are not read and considered with all the other information. I am not sure why you are searching for validation. Overall, from what I can tell, there is no censurship here and individuals have the freedom of discussion and debate. Just because your specific views are not echoed, does not mean people are blindly following like sheep…maybe it means your perspective is not competitive and shared in this discussion market because is seemingly contrary to evidence. Be clear, this is not a slam on you, just a discussion about the weights of perspectives in intellectual debates. FYI, this economic situation is going to tend to foster more extreme views…polarization, of everything, is the result of this political economic system that was allowed to develop.