Thursday, August 4, 2011

The Ponzi Bleeds

Heavy selling taking place worldwide as Eurozone bond spreads blowout. Dow was down as much as 357 points before retracing. One by one countries around the world will sink as a result of their unbearable debt loads. And to think that the Department of Education refuses to give relief to heavily indebted student loan borrowers with terrible job prospects.

Absent more monetary magic stimulus expect all stock markets to crumble under the weight of trillions in debt. Of course the central planners will continue to shower the world will digital fiat in order to postpone the true day of reckoning which will further push silver and gold to the moon. Eventually the current monetary system will fail and will either lead to a fragmented world where globalization retraces or a monster global currency will be born.

Here is a good take on the latest market action from Business Insider:

Well, it's deja vu all over again.

For anyone who followed the market crashes of 2000-2002 and 2007-2009--especially the crash of 2007-2009--the 512-point drop in the Dow feels awfully familiar.

And as those market crashes reminded us, the downdrafts can last a lot longer and be a lot more severe than most people initially think.

(They can also reverse themselves quickly and unexpectedly, and maybe that's what will happen this time. We can always pray.)

But there are also several very important differences between this market crash and the ones a few years ago:

* The Fed has fired most of its bullets (interest rates are already at zero)
* Our budget deficit is already out of control, and Congress has had it with "stimulus"
* The public has had it with bailouts

That means the government's ability to do anything about this market crash is severely limited.

Yes, we'll almost certainly have a "QE3." And maybe that will prop things up a bit. But it won't fix the fundamental problems clogging the economy, just as QE1 and QE2 didn't permanently fix anything. (The only thing that will fix our economy is debt-reduction, discipline, and time.)

To get a good sense of how hamstrung the government is, you need only look as far back as last week, when Congress was so paralyzed that it almost put the country into default rather than raise the debt ceiling.

And you also need only note that, when the 2000 crash began, the US federal budget was running a surplus, and when the 2007 crash began, the deficit was only $200 billion. Now, the deficit's about $1.4 trillion.

Personally, whether or not the market plunges or rips higher tomorrow is of no real concern. The significance of the recent action is the effect on confidence of the big players (governments and corporations) and whether or not the Eurozone will descend into a full blown banking crisis. If a financial crisis erupts out of Europe (very likely) then all bets are off for the fall and next year. Poor Obama couldn't even enjoy his birthday today as the blackberry screen showed blood red across all sectors.

I'm curious to see how the Eurocrats will try to put humpty dumpty back together again. It took us from September 2008 to March 2009 to stabilize the banking system and the USA is the biggest baddest country in the world. The Eurozone is comprised of 17 different nations with no central taxing authority and a central bank that has limited powers with the Germans commanding great influence (the same Germans that are horrified at the specter of hyperinflation).

The poor boomers and their 401k's. Too bad stocks are at 1997 levels and when adjusted for inflation are at 1980's levels. One good thing about the recent plunge is the crash in the price of crude oil as it closed at $85.50. At these prices this translates into a 30 cent discount at the pump. Wow some bones for us proles! Personally I'd rather see the S& at 400 and crude at 30.


  1. Correction: down 408 at one point.

  2. S&P at 1214. Dow down 390. Lets see where this fucker closes today. Wall street is in absolute panic. 401k's are turning into 301k's

  3. 500! Man, it's BY THE MINUTE!

  4. Tommorow? I'm betting lower as no trader wants to carry over the weekend and wait for Europe to blow like a game of musical chairs..
    BTW love the blawg

  5. Just hope it falls more so I can buy back in. I've waiting a year for this correction of a "bull market" driven heavily by QE sugar highs and mass printing.

  6. Thanks for the props @ 1:40

    With the technicals absolutely smashed who knows what the hell tomorrow will bring. Judging from the 08-09 days its possible that we could see pops and drops. Silver got obliterated by 7% so will be scooping some up.

    The main story here is Spain and Italy as Europe is driving the selling here. Bank of America got destroyed by 8% too. Interesting times indeed.

  7. Scotty to Captain Kirk: "The Warp Drive can't take much more Captain!"

    Captain Kirk: "More power Scotty! I need more power! Those fucking Klingon Mutherfuckers!"

    Scotty: "She's breaking up Captain! She's breaking up!"

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