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Markets break down - Dow plummets below 9,000

Thursday, October 9, 2008, 2:30 PM

Okay, folks, we are in the midst of a pretty serious stock market breakdown.

Yes, we've had bigger down days, but this is on the heels of some of the most concerted behind-the-scenes and out-in-the-open official intervention that we've ever seen.

This means the market has lost confidence, not just in the US authorities' ability to manage the crisis, but more generally in central banking. 

Just as ominously, for those who've been watching, the USD has strengthened hugely against the Yen over the past few days, indicating that one more shoe plunking to the ground is the rapid unwinding of a massive Yen carry trade. Note that the Yen is close to breaking the 100:1 barrier.

I am going to reiterate my call that the chance of a general market failure, culminating in a general banking holiday, is now at its highest level ever.

More to come...

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64 Comments

Mr.PR's picture
Mr.PR
Status: Member (Offline)
Joined: Oct 3 2008
Posts: 4
Normaly i like to trade
Normaly i like to trade downtrends, but this time i really get scared. Is there any way this may stop?
northernsoul's picture
northernsoul
Status: Member (Offline)
Joined: Jun 16 2008
Posts: 16
Hyperinflation: Zimbabwe style

Harare has admitted that inflation in Zimbabwe is running at over 200 million % .This has been caused by the Government printing money for its own needs, causing the value of the currency to collapse and the cost of imported goods to escalate.

Doed that sound familiar? Does anyone know of any countries that are busily generating billions and trillions of say, Dollars, Pounds or Euros, to take three currencies at random for the needs of the Govenment?

Can anyone explain to me how deflation could possibly result from the UKs Government to borrow/generate/spend £500 bn ie about $1Trillion to save its banks or indeed from the US Government's desire to borrow/generate spend Trillions of $s also.

Northern Soul

jdb123's picture
jdb123 (not verified)
Bank Holiday
Chris--If next week starts like this week....we Will see the "holiday"  it sounds nice doesn't it...who doesn't want a "holiday"  EXCEPT---its FROM your Money......
capesurvivor's picture
capesurvivor
Status: Platinum Member (Offline)
Joined: Sep 12 2008
Posts: 963
internet

I haven't seen this mentioned before but if the credit system goes, I'm pretty sure thatthe internet does also. All of us pay by automatic credit card and I don't know how long Verizon and AOL will keep providing services if they can't get paid. DARPA may have designed a good system but the Feds didn't have to pay to use it.

I would prepare to puzzle things out by yourself or with some like-minded folks, offline.

 

Just my guess.

 

SG

TnAndy's picture
TnAndy
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Joined: Jun 2 2008
Posts: 4
S&P just sank below an ounce of gold.

S&P close 910

Gold  914

G's picture
G
Status: Bronze Member (Offline)
Joined: Aug 3 2008
Posts: 37
hmmm

the original physical internet no longer exists (the DARPA and MILNET backbones), it was shut down when Tier 1 providers (companines like UUNET/Verizon, AT&T, Level 3, and others) and the associated IPX (internet exchanges, between providers) came to be (in other words the above mentioned companies completely took over, when the government gave up its control of the physical internet). I would be more concerned about electrical power.

There are separate physical networks that only the military uses.

You have to realize that almost all information is transmitted through the internet, and if it is not it is still sent through the same optical fibers and cables using proprietary (non conforming IP) technology.

Quite a few tv networks, credit card transactions, banks, government entities all transverse the same network, the internet whether it is on the actual IP network that is free domain or private network but still on the same cables.

 

G

LifeisGood's picture
LifeisGood
Status: Bronze Member (Offline)
Joined: Aug 16 2008
Posts: 27
Being Grateful

It's been a few weeks now that I've come to accept what is. Therefore, I am grateful for this opportunity to learn and to have taken some-what action to secure my future.

I am grateful not only because I have secured my future but because I am alive in a time where we're living the richest the world has ever seen. We all have legacies to leave because thousands of years from now (mad max days?), they will talk about us and how great our lives were with all the money we had to spend that was created out of thin air. Alas, if history repeats itself (and it will), someday, this crisis will be repeated by more greed like it has today.

I'm truely grateful to be alive. I have a blessed life no matter what happens tomorrow!

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Six-sigma Breakdown

VIX at 64? Dude, I thought I was hallucinating.

As Dr. M. observed yesterday, the Fed (with some help from its friends) threw a rate cut party and nobody came. Obviously, that portended another brisk birch-caning of Mr. Market's tender white bottom today.

But, you've got to admire the firm-handed management by the "authorities." Day after day, they are skillfully guiding the "market" down 5 to 7%, never letting the circuit breakers trip and the lights go out. Because the ugly little secret is, the Masters of the Universe are afraid of the dark! They hide under they beds, pound their fat hairy fists on the floor, and cry for Mommy.

Statistically, this is the third 10,000-year flood in the past 100 years. Let's face it, the "market's" fat-tailed extremes do not follow the normal distribution, any more than natural processes such as Nile floods do (as Hurst observed).

Some day, some brilliant scientist will work out the general solution of the "market distribution." But I'll bet you this: he or she won't be no "economist." Money mouth

jeffgerritsen's picture
jeffgerritsen
Status: Member (Offline)
Joined: Aug 10 2008
Posts: 10
Ted spread just hit a high....

I'll keep it short and sweet - oops all the sweetner is gone!

The Ted spread just hit 4.23.

Wow, this indicates the high degree of unwillingness of banks to lend to each other.

Were all thinking "it can't get any worse - and then it does!"

All the kings men tried to put Humpey dumpty back together again - and they can't.

All I can say is that my fun meter is pegged - and bent over!

 

 

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Short-term low?

Above a headline reading "DOW LOSES ANOTHER 7%"," Drudge Report has posted a big photo of a GRIZZLY BEAR.

Mass media fade indicator activated: big bounce due ... followed by a retest of the low (and possible failure).

DJIA yields 3.77%, according to BigCharts -- close to a neutral, average long-term yield of 4% or so. Not too shabby! But some of the high-yielders in the Dow -- for instance, GM at less than a nickel, yielding an eye-popping 21% -- are shaky companies.

Maybe the retest occurs when Ford (at an apocalyptic $2.08 a share) files BK. An American icon is about to go under. And then there will be a catharsis, and the phoenix will rise from the ashes. So that's the broad-brush scenario; I leave it to Dr. M. to winkle out the timing.

JustMeHereToday's picture
JustMeHereToday
Status: Member (Offline)
Joined: Sep 2 2008
Posts: 2
Holy Holiday

I wonder how to envision a banking holiday, unplanned and unforeseen by most, to look and feel like.  I'm thinking panic and frustration and how does one small business or non-profit org meets its payroll for example.  What happens to those unable to purchase food and needed medicine? IOUs? This would certainly test the bonds of community and maybe establish a baseline from which to build. 

Pardon my language and even on the quest to a new way of being: What crappy times.

I think I feel something resembling better!

Back to breathing.

capesurvivor's picture
capesurvivor
Status: Platinum Member (Offline)
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Posts: 963
internet again

GG,

 

Thanks for info about DARPA. I guess I was thinking more along the lines that if credit lines and cards were frozen, commerce, effectively, would cease outside of local cash transactions.

 

SG

johndaniels's picture
johndaniels
Status: Bronze Member (Offline)
Joined: Aug 30 2008
Posts: 31
tactical takeover of financials by gov't for benefit of the IRS

This is all simply a repeat of 1913, and the Great Depression that followed. They commandeered our currency system. Their plot now is to acquire unregulated legislative powers via panicked political force... much like the Bailout was "forced" on us through threats of consequence if it was not passed. Their long term goal is the eventual consolidation of all banks into a "one world" financial system. This allows them to instill a "one world" currency.. and to further entrench their own positions of power. Just more ways of transferring wealth from the middle and poor classes to the super elites.

We saw the headline today that said in effect the Government is considering taking ownership interests in banks. This is a harbinger to the end of the world, and our constitutional rights! With the government watching over every banking transaction, we will have absolutely no privacy from "Big Brother". It will be end of our free society as we know it, if the government suceeds in controlling our financial institutions.

dmp717's picture
dmp717
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Posts: 1
The new story

I am grateful for all I have learned on this site which I discovered when googling "End of Money".

My question after carefully watching the Crash Course and reading almost everything posted here is this:

"What's next?" I don't mean in terms of survival, I mean in terms of money. What are some probabilities for and types of new monetary systems? How long will it be before a viable replacement can be had? If all this is unknown, unplanned or not analyzed, then it becomes survival of the fittest and maybe we aren't so evolved after all.

 Or maybe some of the "prophecies" are being fulfilled.

Certainly not knowing....

717

cmartenson's picture
cmartenson
Status: Diamond Member (Online)
Joined: Jun 7 2007
Posts: 5570
Short-term low?

If I were a betting man, and I am, I would bet we are at a short-term low.

But I think there is some sort of news to which I am not yet privy.

GM and Fraud, er, Ford, had very bad days today.  Each holds hundreds of billions of dollars of outstanding debt.  In times past this prospect alone would have been sufficient to bring the system to its knees.

While I am cognizant of the fact that they stystem is pretty much on its knees today, the reality is that the destruction across the auto industries is mirrored within, well, within every other industry I can find:

As near as I can tell the profit leaders of the past 5 years are now the losers of the day.  While I might speculate on a short term bounce - and I certainly would not dump my portfolio here and now - I am also looking at a breadth of wealth destruction that says "be careful, this could be different".

As always, I reserve the right to be wrong.

Best,
Chris

 

srbarbour's picture
srbarbour
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Posts: 148
Not that surprised

I'm not really all that surprised that so much industry is doing so bad.  For the past year(s) oil has been rising continuously.  Only a relatively small part of those rising costs have been being passed onto consumers.  So, much like a house with termites, our entire manufacturing substructure has been eaten out underneath us.   The structure is unsound, and as such, it is only rational to expect that the great majority of these industries are no longer capable of surviving a downturn.

Some, aren't even capable of surviving an upturn anymore.

Just wait until the medical, and education bubbles also pop under the ferocity of this event.   Both are due complete  and annihilating collapses after well over a decade of insane cost increases.   The bright side of the medical bubble popping: Those sky high predictions of Medicare costs won't be so bad.  The downside: we won't have a medical system. Wink

(admittedly, no medical system isn't much of a change at this point.) 

 --

Steve 

ninakat's picture
ninakat
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Posts: 9
secrets and lies

"But I think there is some sort of news to which I am not yet privy."

Indeed. And I'd bet it would probably shock even you, Chris.

Erik T.'s picture
Erik T.
Status: Diamond Member (Offline)
Joined: Aug 5 2008
Posts: 1234
You ain't kidding about something fishy

These gold charts really make me wonder if some sort of manipulation has been going on in today's market, as has been discussed in other threads here. The multi-day trend was a steady price escalation. It all went south today for the first time in several sessions. Then at 3pm NY time gold spiked right back to its multi-day trendline.  Hmmm...

Press the "Refresh" button on your browser while holding down the <ctrl> key to refresh this page.

Live 24 hours gold chart [Kitco Inc.]

Printer Friendly Version

Live New York Gold Chart [Kitco Inc.]

 

srbarbour's picture
srbarbour
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caroline_culbert's picture
caroline_culbert
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Posts: 624
no time soon...

I don't predict this will stop anytime soon.  The $700 Bil is like a band aid for an internal wound, that is, to stop the bleeding we need to examine what caused it so as to successfully heal it.  If the $700 Bil doesn't solve the problem (which I believe) then we've added more trouble, work, and a lot more money to nip this thing in the bud.  If you've seen the Zeitgeist movie or have spoken with foreigners, it is obvious that the central banking system is not a sound system anywhere.  Many countries, in fact, have rejected the central bankers from entering their country for the very reasons such as the problems we're facing now.  When will we ever learn?  We're like a bad, alcoholic country, in that, we have to hit bottom (Great Depression) before we learn our lessons.  And the sad thing about that is we didn't learn very well from our past mistakes.  Get rid of the Central Banks!  Our hard earned savings may not be worth anything in the future... and that's sad since that is what we teach our kids!  Save, save, save.  Why should I save into a 401k if:

A.) I have to gamble with my hard earned money to be able to retire!?

and/or

B.) It may not be worth anything even if I get there and have $$ in my retirement!?

 

Caroline

miko9's picture
miko9
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Joined: Sep 18 2008
Posts: 6
Question : Oil- Why is it low?
 
G's picture
G
Status: Bronze Member (Offline)
Joined: Aug 3 2008
Posts: 37
ok

I think it is pretty obvious that Europe has a Central Bank. It's obvious because they are doing worse than we are right now that they subscribed to the same for fiscal and monetary policies. Perhaps what is most stunning is that depending on where you get your information that some of their institutions were more leveraged than ours. Perhaps it would be a good idea and do some research and realize there was a housing bubble in the UK and other Euro locales as well, maybe not on the same scale.

I fail to see how Europe is a model for anything, especially when it comes regulation. The world is in this together, no one gets off, they were all greedy and they are all in debt.

G

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Low Oil

Miko9

Here's my instantaneous reaction:

1.) As many others have said, oil has become decoupled from any kind of fundamentals of supply and demand or long-term outlook. Oil is the most vital substance on the planet and has always been phenomenally undervalued. And right now in 2008 there are no reasons for oil to be low other than psychological ones. But since psychological reasons most often determine what occurs in markets at least it makes sense.

2.) Conventional wisdom says (blah, blah, blah) that if the market is down and the economy is slowing (ha!) then demand destruction will follow and supply/demand theory kicks in. At least that's what they say. And that could be true.

However, at some point in the next few years (maybe as soon as within a year) the razor thin supply margins of oil will explode in everyone's face and oil will never be remotely cheap again no matter how much the global economy tanks.

G's picture
G
Status: Bronze Member (Offline)
Joined: Aug 3 2008
Posts: 37
oil

I think oil is low because of deflation and the contraction of the useable money supply, due to frozen credit, banks sitting on money, citizens making withdrawls, I am pretty sure if one dollar becomes 10 dollars with a reserve rate of 10% then the reverse must be true, that a non-productive dollar, sitting under a mattress or in a bank that is not lending is ONLY 1 dollar.

The billions of dollars put in the system do not count yet because they are chillin and not being lended to anyone. When those dollars start getting spent and loaned then you will see oil skyrocket, probably gold as well.

 As far as the shortages in the south east, if you do the research the real issue is not supply shortage it is government interference with price controls, i will post the link to that article if anyone is interested.

srbarbour's picture
srbarbour
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Posts: 148
Re: Why oil is low

Over the past two months there were a lot of reasons to ask that question. Then last week, and this week something huge happened.

 

 

 

Both gasoline and oil inventories made a wicked hook that, if continued for the next several weeks can be only described as demand falling off a cliff. At this point, there is a very real possibility (if this is indeed world demand being utterly crushed) oil prices, instead of rising, will outright crash in the next few months. I'm sure if there is even one more week of this OPEC will go into panic. So will Russia, whose petrodollars are the only thing making its obliterated economy look halfway alive. (So much for that loan, Iceland!)

This massive shift, in a way scares the hell out of me. In recent years there have been a huge amount of oil projects built on expensive oil (Tar Sands, etc...), and like most projects these are deep in debt. If oil stages a full out crash we could see many production gains wiped out in short order, meaning that extremely intense cost spikes could be in the further future (1+ years from now). Even scarier, it'll threaten future development of these expensive oil resources and, of course, development of alternative energies -- and this'll be true even in the face of an oil peak!!! -- due to massive fears in the energy and investment industries that oil will crash yet again. (The 80s oil crash killed the 70s alternative initiatives)

In any case, that's one more set of economies that'll be destroyed. On the bright side, it'll bring down costs and provide some breathing room. Unfortunately, that won't matter much because the damage has already been done.

--

Steve

MaxThrax's picture
MaxThrax
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Joined: Sep 12 2008
Posts: 9
Advice for a novice?
Hey guys. I have  questions regarding my credit cards. I have a decent credit rating, and still have lots of room on my credit cards. I've been paying them down, paying much more than the minimum. My question is,  now that it appears that the sh!t is about to hit fan...should I continue to do so? Do I wait for hyperinflation then max out my cards and buy things that might help in dire circumstances? What good is my credit rating if the dollar collapses? Thanx in advance.
srbarbour's picture
srbarbour
Status: Silver Member (Offline)
Joined: Aug 23 2008
Posts: 148
Don't need no stinkin' credit cards

[quote]Hey guys. I have  questions regarding my credit cards. I have a decent credit rating, and still have lots of room on my credit cards.[/quote]

Here's all the advice you'll ever need for credit cards:  Destroy them.

There is no reason anyone should ever have a credit card.   Keep a positive balance of $5,000 and it'll do you just as good, and pay interest (instead of taking it).

If you've got debt on cards.  Get rid of it.  Most cards are shrinking the maximum limits of their possessors.   Hedging against inflation with them is no good (the card companies will just raise the interest rates through the roof).  In fact, credit cards exist for one, and only one reason -- to con from you your money.

--

Steve    

G's picture
G
Status: Bronze Member (Offline)
Joined: Aug 3 2008
Posts: 37
oh yeah
I am not rich, I owe no debt, I have never had a real credit card, and I work hard for my money. Get out of debt, get rid of your credit cards. I saved for everything I owned and did not have to go into debt for it. I might not have everything that many people do, but I do not owe anything on the things I have.
MaxThrax's picture
MaxThrax
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Posts: 9
Thanx for your response.

Thanx for your response. You know, I came here to learn more about the American economy and it's pitfalls and started reading more about the economy, but mostly now I feel more confused than ever. I've been trading FOREX pretty successfully, but I'm a techincal trader and I don't really know anything about fundamentals.

 So what are we looking at next year? Deflation? Hyper-inflation? How does this economic collapse thingy work?

G's picture
G
Status: Bronze Member (Offline)
Joined: Aug 3 2008
Posts: 37
lol
Take the crash course! after that anything is really anyone's guess.
joe2baba's picture
joe2baba
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Joined: Jun 17 2008
Posts: 807
skymiles
but what about my skymiles?
ladamski99's picture
ladamski99
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Posts: 17
If oil demand really does

If oil demand really does fall off a cliff, do you really think the demand will increase in the near future?

 While I can see what you're saying happening, I think the opposite may be true. A severe, global depression should lower oil and gasoline demand for a very long time, no?

MaxThrax's picture
MaxThrax
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Posts: 9
I did! I did take the crash course!
I'm completely current on the crash course....waiting on the last installment. The crash course indicates hyper inflation is coming, everyone else is saying that deflation is coming. I don't know who to believe.
srbarbour's picture
srbarbour
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Posts: 148
Oil demand and depression

[quote]If oil demand really does fall off a cliff, do you really think the demand will increase in the near future?[/quote]

It is very difficult to say how percisely a global depression will effect oil demand. The problem being, that large amounts of oil demand are not flexible. How much, really can a person drive less? How much less food can be grown? Etc... etc... Recall, depressions are often caused because the financial world catches up with the real world. So, by extension, we can say that we've probably been in a depression for a year now.

Yet, how much did demand really fall?

But, we'll find out, now won't we.

--

Steve

miranda's picture
miranda
Status: Bronze Member (Offline)
Joined: Apr 29 2008
Posts: 28
yen carry trade?

"Just as ominously, for those who've been watching, the USD has strengthened hugely against the Yen over the past few days, indicating that one more shoe plunking to the ground is the rapid unwinding of a massive Yen carry trade. Note that the Yen is close to breaking the 100:1 barrier."


Based on this statement by Chris, I had to Google "Yen carry-trade" to learn what it is. Low and behold... another staple of high-finance, which profoundly affects our stock market and "the fallout from which is potentially endless”, about which I knew nothing

A fascinating new subject. Here's a chart that demonstrates this trade's impact:

 

 

 

 

mainecooncat's picture
mainecooncat
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Joined: Sep 7 2008
Posts: 488
Cheap oil not necessarily a good sign

In the past, when the economy was technically thriving and supply stayed ahead of demand, cheap oil was a good thing. Well, in fact, if you look at the history of oil prices we've pretty much had cheap oil all the time -- except for the '70's crises.

But today things are different. Oil went so high this past year (bursting a negative bubble some argued) that now drops in oil prices aren't considered corrections of an overzealous market but an indicator of a tanking economy. Until we replace petroleum based systems with others run on different fuels one could say that oil consumption is the leading indicator of economic growth.

But since we don't have any replacement for petroleum products a significant drop in oil prices/demand can only be read as an ominous sign. If oil is ten dollars a barrel again it means that you're unemployed and stuck in your house.

So when someone exclaims to me how great it is that oil is falling like a rock I tell them that the exact opposite is most likely true.

srbarbour also raises a critical point regarding the inflexibility of much of the world's demand.

G's picture
G
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Posts: 37
Xflies's picture
Xflies
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Posts: 157
I think you guys are losing your objectivity
It's good to see Chris question his calls, thinking there might be a short term low... to question how can things go differently than what he thinks it will do... to constantly take new data points for what they are.  This chart does not show a conspiracy to me... it coincides exactly when the markets started to slide precipitously.  Come on guys (not you or Chris, just meant it in general), this site started off as an educational, self awareness building exercise and now just look at the forums.  Is there truly enough evidence that we have TODAY that can justify talk of going back to the Amish way of living?  How about some posts on how there's a chance that the world financial markets can be saved ... well at least for the short term?  Or are posters now too scared to post something positive?  If that's the case, that's the signal as to when you should leave the site for good... when it starts to detract from people putting opposing views and having a vibrant debate.
agapilot's picture
agapilot
Status: Martenson Brigade Member (Offline)
Joined: Oct 4 2008
Posts: 11
economy

I see us heading for a depression unless drastic measures are inacted. Too many trend analysts and other knowledgable people are making a case for this and my own intuition is screaming this at me and I have lived by my intuition for so long. The one thing I worry about is the violence that would likely ensue in the large cities.

I am studying all i can and gratefull for this site and even have my kids doing the course. I figure they too also need to understand why everything they have had up till now is probably coming to a screeching halt plus great motivater to getting them to participate in the soon to be running family "farm". Even christmas gonna be differnt as planning on gifts that will get us thru winter like down blankets and such. forget the wii games.

Good luck to us all

MaxThrax's picture
MaxThrax
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Posts: 9
Violence...yes.

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?

G's picture
G
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Joined: Aug 3 2008
Posts: 37
hmmmm

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

MaxThrax's picture
MaxThrax
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Posts: 9
ALP's picture
ALP
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Posts: 1
Where do I buy Silver????

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.

srbarbour's picture
srbarbour
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Posts: 148
Objectivity

[quote]This chart does not show a conspiracy to me... it coincides exactly when the markets started to slide precipitously. [/quote]

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.  

[quote] Is there truly enough evidence that we have TODAY that can justify talk of going back to the Amish way of living? [/quote] 

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.

[quote] How about some posts on how there's a chance that the world financial markets can be saved [/quote]  

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.

[quote] Or are posters now too scared to post something positive?[/quote]

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 

srbarbour's picture
srbarbour
Status: Silver Member (Offline)
Joined: Aug 23 2008
Posts: 148
I hate to burst your pro-market bubble...

[quote]I think the solution would have been to leave the entire mess alone and let the markets self correct with no bailouts [/quote]

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 

Xflies's picture
Xflies
Status: Silver Member (Offline)
Joined: Aug 19 2008
Posts: 157
Objectivity continued

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. 

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2237
Here's a different view...

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   

srbarbour's picture
srbarbour
Status: Silver Member (Offline)
Joined: Aug 23 2008
Posts: 148
On TARP

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 

caroline_culbert's picture
caroline_culbert
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 624
f**k the credit card companies--

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

 

rvwainscott's picture
rvwainscott
Status: Member (Offline)
Joined: Aug 31 2008
Posts: 9
A letter I wrote last year.

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

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