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[arjuna]

Stock Market Meltdown

By Mike Whitney

�Whatever is going to happen, will happen...just don�t let it happen to you.� Doug Casey, Casey Research

08/04/07 "ICH " -- --- It�s a Bloodbath. That�s the only way to describe it.

On Friday the Dow Jones took a 280 point nosedive on fears that that losses in the subprime market will spill over into the broader economy and cut into GDP. Ever since the two Bears Sterns hedge funds folded a couple weeks ago the stock market has been writhing like a drug-addict in a detox-cell. Yesterday�s sell-off added to last week�s plunge that wiped out $2.1 trillion in value from global equity markets. New York investment guru, Jim Rogers said that the real market is �one of the biggest bubbles we�ve ever had in credit� and that the subprime rout �has a long way to go.�

We are now beginning to feel the first tremors from the massive credit expansion which began 6 years ago at the Federal Reserve. The trillions of dollars which were pumped into the global economy via low interest rates and increased money supply have raised the nominal value of equities, but at great cost. Now, stocks will fall sharply and businesses will fail as volatility increases and liquidity dries up. Stagnant wages and a declining dollar have thrust the country into a deflationary cycle which has---up to this point---been concealed by Greenspan�s �cheap money� policy. Those days are over. Economic fundamentals are taking hold. The market swings will get deeper and more violent as the Fed�s massive credit bubble continues to unwind. Trillions of dollars of market value will vanish overnight. The stock market will go into a long-term swoon.

Ludwig von Mises summed it up like this:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." (Thanks to the Daily Reckoning)

It doesn�t matter if the �underlying economy is strong�. (as Henry Paulson likes to say) That�s nonsense. Trillions of dollars of over-leveraged bets are quickly unraveling which has the same effect as taking a wrecking ball down Wall Street.

[.....]

The American people know intuitively that something is fundamentally wrong with the economy. They just don�t know the details or the extent of the damage. Decades of neoliberal policies have inflated the currency, broadened the wealth gap, and destroyed manufacturing. Workers can no longer buy the things they produce because wages have stagnated through a stealth campaign of inflation which originated at the Federal Reserve. When wages shrink, prices eventually fall from overcapacity and the economy slips into a deflationary cycle. This downward spiral ultimately ends in depression. So far, that's been avoided because of the Fed�s massive expansion of cheap credit. But that won�t last.

Economic policy is not �accidental�. The Fed�s policies were designed to create a crisis, and that crisis was intended to coincide with the activation of a nation-wide police-state. It is foolish to think that Greenspan or his fellows did not grasp the implications of the system they put in place. These are very smart men and very shrewd economists. They knew exactly what they were doing. They all understand the effects of low interest rates and expanded money supply. And, they�re also all familiar with Ludwig von Mises, who said:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion.�

A crash is unavoidable because the policies were designed to create a crash. It�s that simple.

The Federal Reserve is a central player in a carefully considered plan to shift the nation�s wealth from one class to another. And they have succeeded. Nearly 4 million American jobs have been sent overseas, the country has increased the national debt by $3 trillion dollars, and foreign investors own $4.5 trillion in US dollar-backed assets. While the Fed has been carrying out its economic strategy; the Bush administration has deployed the military around the world to conduct a global resource war. These are two wheels on the same axel. The goal is to maintain control of the global economic system by seizing the remaining energy resources in Eurasia and the Middle East and by integrating potential rivals into the American-led economic model under the direction of the Central Bank. All of the leading candidates�Democrat and Republican---belong to secretive organizations which ascribe to the same basic principles of global rule (new world order) and permanent US hegemony. There�s no quantifiable difference between any of them.

The impending economic crisis is part of a much broader scheme to remake the political system from the ground-up so it better meets the needs of ruling elite. After the crash, public assets will be sold at firesale prices to the highest bidder. Public lands will be auctioned off. Basic services will be privatized. Democracy will be shelved.

The unsupervised expansion of credit through interest rate manipulation is the fast-track to tyranny. Thomas Jefferson fully understood this. He said:

�If the American people ever allow private banks to control the issue of our currency, first by inflation, then by deflation, the banks and the corporations that will grow up will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.�

[....]

Read entire article here: http://www.informationclearinghouse.info/article18119.htm

[Joo Rip Gwa Rhhee]

as a % of the value of the stock market how much was it?

I know the author is hoping for a financial disaster in the US, but he isn't going to get it.

[postfundie]

[sojourner1]

While this is probably one of the most complex situations the world has ever seen, my gut feeling tells me that America is in big trouble as much I wish it weren't so. With that said, the global economy model America developed over the years will have to restructure which means painful setbacks for everyone involved; including Asian countries due to their hyper wealth building economies being dependent on exporting their products to America. Already things are quickly changing due to foreign product safety concerns, declining US dollar, artificially over valued US stock and real estate markets, decreasing career opportunities due to lack of physical productivity, debt crunch due to low interest rates in a time where living essentials exceed incomes, negative current account due to importing more than exporting, and over extension of military power. I wish things were like they were 30 to 50 years ago in terms of US economy characteristics of healthy growth, development, and opportunity, but this, unfortunately, just isn't so.

[Tiger Beer]

I don't believe in the conspiracy.

But I do believe the U.S. is headed for some seriously hard times in the near future.

[Joo Rip Gwa Rhhee]

[thepeel]

There is no conspiracy.

After 9/11 the Fed printed lots of cash to stimulate aggregate demand. This worked, but classical monetary theory suggests that we should have an a period of inflation as prices catch up to the available amount of credit.

This didn't happen as the Chinese have been hiding the money under their mattress. The Chinese, Koreans, Japanese and others use the USD as a pseudo-greenback-standard. They use their forgiven reserves as a way to manipulate and keep stable their currencies.

Because much the extra cash is under the mattress and not in circulation, the inflation doesn't happen to the extent that it ought. Remember, "inflation is everywhere and always a monetary phenomenon" (Milton Friedman).

But as differing nations release portions of the US$ held assets, the value of the dollar will decline. As the value of the dollar starts to decline, speculators and the "herd mentality" start to kick in.

The commodity bubble will burst, as will the various housing/fixed asset bubbles. Expect higher interest rates and for large amounts of currently out-sourced manufacturing to return to the USA.

But the $ will not decline a huge amount, and for too much of the assets to be released would also decrease the value of the assets currently held. It is in China's best interests for the $ to be relatively stable.

The inflation is coming, I reckon. We can see from the private equity and hedge funds boom, and the amazing power of the American consumer, that there was a huge liquidity glut. But Bear Sterns and others are also seeing that this bubble done popped. Now we will have the tightening and inflation. Interest rates will rise as money needs to become more scarce.

There is no conspiracy. The Fed is a bad institution, in my opinion, but not a member of some grade plot to steal our liberty.

Greenspan simply printed too much money. And the global economic/financial system adjusted to that. Now, we will all have to tighten out belts and this liquidity glut is reconciled and bad investments fail (high and low levels of liquidity affect the type of investments made, al la housing prices).

This is the fiat-caused classic business cycle described by Von Mises et al being taken to the global level. It is not an ideal system, but ultimately a stable one. IMO.

[arjuna]

[thepeel]

Interesting ideas.. I used to agree with much of what you are saying. I was a fairly loyal follower of Von Mises, Rothbard and Rockwell and their arguments against fiat cash.

[arjuna]

Once you unleash a beast, it takes on a life of its own and becomes "natural" and "real." For all practical purposes, it is. How on Earth can you ignore debt and interest... unless you do away with it completely. That is possible, but does not happen because only a handful even think about it.

[thepeel]

[arjuna]

I don't give a flying fvck about money, but this is kinda amusing:

Jim Cramer's Complete Market Meltdown Rant!

[keane]

[tzechuk]

[keane]