- What a week for the stock market. On Wednesday the market
took a 360 point nosedive followed, two days later, by a 220 point belly-flop.
By the time it was over, the trading pits looked more like a sausage-packing
plant than the world's financial epicenter. After the bell, downcast traders
could be seen tiptoeing through the carnage on their way to the local liquor
store to load up on "Stoly" and boxes of Franzia---anything that
would steady their nerves and put the week behind them.
- Everyone could see it coming; the train-wreck. It was
mostly carry-over from the night before when Asian stocks took a thumping
on reports of slower growth in the US and growing troubles in the credit
markets. That put the first domino in motion. Fed chief Bernanke's announcement
that the economy will face "a sharp slowdown from the housing market's
contraction" and an "inflationary surge from sharply higher oil
prices and the weaker dollar", didn't help either. His remarks triggered
a blow-off in the currency markets while equities were frog-marched to
- The Shanghai market took the worst hit dropping nearly
5% before the trading-day ended. Taiwan and Hong Kong followed suit, sliding
3.9% and 3.2% respectively. Share prices in Japan fell 2%. The next morning,
Wall Street crashed. It was a massacre.
- This is a bear market now. The last bull was dragged
from the Street on Friday with a harpoon in its chest.
- The subprime contagion has now spread beyond the US and
Europe to markets in the Far East. No one is fooled by Bernanke's sunny
predictions that the economy will bounce back next year with a strong showing
in the first quarter. That's baloney and everyone knows it. The economy
has stumbled down the elevator shaft and is just waiting to hit bottom.
Consumer confidence is flagging, housing is falling, foreign capital is
fleeing, and the greenback is one flush away from the sewage-treatment
plant. Bernanke's soothing bromides are meaningless.
- "I don't see any significant change in the broad
holdings of dollars around the world. Dollars remain the dominant reserve
asset and I expect that to continue to be the case," Bernanke said
to the Congressional Economic Committee.
- Really? So why is the greenback plummeting if people
aren't dumping it, Ben? What an absurd comment. The dollar has lost 63%
against the euro and dropped to record lows against a basket of world currencies.
Foreign central banks and investors have been ditching it as fast as they
can before it loses more value. The dollar's tumble has been the most dazzling
currency-flameout in modern times and Bernanke is acting like he's still
asleep at the switch. It's madness.
- The greenback is getting clobbered by the Fed's "low-interest"
snake oil and the gargantuan current account deficit. If Bernanke clips
rates again to bail out the stock market, the dollar will slip into irreversible
respiratory failure. Food and oil prices will shoot to the moon overnight
and the remains of the greenback will be carted off to the nearest boneyard.
- September's trade deficit was another blow to the waning
dollar. The Census Bureau reported on Friday that the deficit clocked in
at $56.5 billion. That's $684 billion per annum! Bush has been crowing
about the "shrinking deficit", but the numbers are nothing to
boast about. We're still borrowing more than we're producing. We're still
living beyond our means. The lower numbers just reflect the decline in
home construction which is import-intensive. The fact is, we're addicted
to debt-fueled consumption and forgotten that, eventually, the trillions
that we've borrowed from foreign creditors, will have to be repaid. If
the dollar is replaced as the world's reserve currency, then we'll have
to pay back $9 trillion of outstanding debt. We might as well hang out
the "Foreclosed" sign right now and get fitted for Chinese workers-suits.
- This is from Bloomberg News:
- "As the dollar tumbles, concern is growing that
its weakness may augur the end of the U.S. currency's 62-year reign as
the world's specie of choice for trade, financial transactions and central-bank
reserves..The dollar owes its position as the world's premier international
currency to its status as a haven during times of turmoil, the absence
of a suitable rival, weak domestic demand in other countries and plain
old inertia. Geopolitics also play a role."
- Nonsense. Who believes this rubbish? The dollar is the
so-called "international currency" because the Federal Reserve
and its well-heeled patrons are the directors of the US-Euro-Japan banking
cabal which is at the center of the global Fiat money scam. There's nothing
more to it than that. Notice the recent "unilateral" clamp-down
on Iran by the US-led banking syndicate. The action was initiated without
UN approval for the simple reason that the UN, the World Bank, the IMF,
the WTO and thousands of NGOs are just more of the Central Banks' prime
properties. Don't expect the father to ask the child for permission to
punish one of his errant children. The banks are the one's who really call
the shots and--behind the curtain of feigned respectability---they are
the driving force behind the endless wars.
- The Fed's plan to "devalue" our way to prosperity
appears to have hit a few ill-placed speed-bumps. The stock market is hanging
by a thread and consumer confidence is at its lowest ebb since the start
of the Iraq War. The falling dollar is expected to put a damper on Christmas
spending and knock equities for a loop. That can't be good for economy--especially
when 72% of GDP comes from consumer spending.
- We're already begun to see the telltale signs that the
consumer is loosing ground and about to slip into a debt-induced coma.
- According to data from the University of Michigan:
- "Consumer confidence reached its lowest level in
more than two years this month amid concerns over record-high oil prices,
continued trouble in the housing market and higher inflationAlthough consumer
attitudes deteriorated across the board, the substantial drop in expectations
contributed heavily to the sizeable decline in the overall index."
- The average working stiff doesn't put any stock in Bernanke's
palavering. He sees what's going on for himself every time he pulls up
to the gas pump or goes the grocery store. He doesn't need the University
of Michigan to tell him he's getting screwed; he knows it! The economy
is sinking, inflation is skyrocketing, and the country is adrift. Every
farthing in the public till has been shoveled into a black hole in the
Middle East. Does Bernanke really think working people don't know that?
Everyone knows that. Everyone knows the economy is on life-support; just
like everyone knows the country is collapsing from mismanagement. Even
the flag-waving, war-mongering maniacs on the Wall Street Journal's op-ed
page are starting to shutter from the avalanche of bad news. They see what's
going on and they're scared---scared sh**less.
- Unfortunately, the sudden shift in consumer sentiment
is the hurting retailers who depend on Christmas to carry them through
the year. We've already seen the sluggishness in housing and auto sales.
Now it's showing up in retail. Abercrombie, American Eagle, Ann Taylor,
Chicos, Dillards, The Gap and Nordstrom are all reporting sagging sales.
Walmart, Lowes and the other big-box stores are lowering their projections
as well. It's going to be a lean Christmas.
- The poor US consumer is finally maxed-out and can't tap
into his home equity anymore for presto-credit. He's mortgaged "to
the hilt" and he's already run up 6 or 7 credit cards to their limit.
In fact, credit card debt is a growing concern for the banks, too.
- The commercial banks are the victims' of their own success.
After years of seductive promotions and saturation mailings the credit
card industry is at its zenith leaving consumers with a staggering bill
of nearly $1 trillion. ($915 billion) More and more customers are finding
themselves unable to make even minimum payments on their balances and defaults
are piling up at a record pace. This is the next phase of the subprime
fiasco and it has the potential to be nearly as disruptive as the housing
meltdown. The problem is complex, too. After all, most credit card debt
in the last 6 years has been "securitized" and passed on to investors
in the secondary market. (pension funds, hedge funds etc.) That means we
can expect more tremors in the stock market as corporate earnings go south
after credit card-backed bonds are downgraded. It's just more of the same
"structured finance" chicanery; debt stacked on debt, until the
whole edifice caves in.
- It's looking more and more like Reagan's "shining
city on the hill" was erected on a mountain of toxic debt. It's a
wonder it hasn't sunk already.
- The country is headed for recession and there's nothing
that Bernanke can do to stop it. The only question is whether we'll be
facing a colossal economy-busting meltdown like 1929 or a milder 5 or 6-year
slump. That's up to the Federal Reserve. If the Fed chief decides to pit
himself against the falling markets by slashing rates and destroying the
currency; then we are likely to be digging-out for years. But if Bernanke
steps aside, and lets the chips fall where they may, then the pace of recovery
will be quicker.
- Whatever choice he makes, there's no avoiding the inevitable
downturn. The hammer is poised to strike the anvil. The stock market will
fall, the over-extended banks and hedge funds will collapse, and the country
will go into a protracted, economic tailspin. That much is certain. Economic
fundamentals can only be shrugged off for so long. When markets correct
it's like a tidal-surge that sweeps-away the deadwood of bad bets and over-levered
investments leaving behind a broad-expanse of empty beach.
- Recession is a normal part of the business cycle. It
can't be avoided. The economy needs to unwind so debts can get written
off and businesses can retool for the future. The upcoming recession is
shaping up to be worse than its predecessors---a real doozey.
- The damage caused by the Fed's excessive credit has been
considerable. It'll take years to mop up the red ink and set the house
aright. The markets are in a shambles, investors have been battered and
confidence is gone.
- Structured finance has been an unmitigated disaster.
It needs to be scrapped. We need a new financial system for a new epoch;
a system that is heavily regulated and supervised to discourage the crooks
and con-artists; a system that it maintains its essential link to the real,
productive underlying economy and avoids the galaxy of complex derivatives,
"securitized" liabilities, and opaque debt-instruments that have
brought on the present crisis; a system that responds to the needs of working
people and takes into consideration the looming problems of environmental
degradation, resource scarcity, and climate change; a system that reinvests
in communities, education and health-care rather than fattening the bottom-line
of corporate racketeers and brandy-drooling elites. It's time to remove
the rotten scaffolding and rebuild the whole contraption brick by brick.
- The system is broken. Maybe Greenspan did us all a favor
by blowing it up with his "low interest" dynamite. Good riddance.