The stock market is going through the floor

Dow is under 11,000. Down over 100 pts.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=2324535&mesg_id=2324535

I'm going to see if I can find the article from awhile back where someone predicted an "economic 9-11"

all the fundamaentala are there for a 1929 style depresion, all of them... and for the same bloody reasons

And at this point bush and the publicans cannot afford a depresion...

Enough about how the whole thing works.I was just saying I read an article about it.Honestly,the stock market is greek to me!I only know what little I've learned here.I find your post reassuring,though.

if we have a depresion it will BE BAD... I am a historian by training and I see what is going on and shake my head. Like history is a four letter word for republicans... Hoover did the same things George did (save get us into imperialistic wars), but the economy was far smaller. the depresion destroyed lives... but the trickle down, it is the same trick pony Grant tried (recesion), Hoover tried (Depresion) reagan tried, (recesion)... you'd think they'll learn

A lot of the problems that led to the Great Depression do not exist anymore, in particular the ones related to banks.

10% swings in equities markets are not uncommon at all. Market was over 11,000. Market could drop below 10,000 and it would still be perfectly normal.

That said, certain areas are heavily oversold, but people pretty much just have to eat this in the short term. Hence why all sane asset managers only recommend heavy stock investments for those who have lots of income they can afford to take hits on, or who are very young.

Several emerging markets are also massively oversold, but that's a hedge fund problem more than anything else. They're the ones behind most of the massive run ups in gold and other commodties, which have been completely irrational.

in that we agree... I am talking of economic mega trends... and trickle down and what it does

it was a large factor, but you can also talk about other factors that led to it, like the stock exchange and macro economic trends and the great redisttibution of wealth

If we have a second great depresion it will have different caouses than 1929... and if the FDIC fails, the banking system will suffer major damage as well

By the way the banks played no role in the 1870s, but had a role to play in the 1840 when Andrww Jackson defunded the National Bank. Not all recessions or depresions have banks involved... 1929 did... but not all them did

The evidence is that the economy was already on the slide in August of 1929. Besides, the stock market plunge was almost completely reversed in early 1930. The Dow rallied back to 300.

The failure of rural banks due to agricultural contraction and then the rolling failures of some 5,000 banks were the largest contributing factor. The banking system was absolutely rotten in the 1920s and also back in the 1890s when the 1893 Depression struck.

consumer lending practices are just as speculative as they were during the '20s. No event in history repeats exactly, but there are some things that "resemble" each other historically.

I have foreseen that inflation will continue to rise and the Fed. will have to raise interest rates. This will cause foreclosures of homes, such as we are now seeing. The main reason for this is speculative lending practices that sprang up during the low interest rate periods. People with adjustable rate mortgages and interest-only mortgages must consistently make more money, or inflation must grow slowly, if they are to keep their houses. In this case inflation is a out pacing wage increases.

Not only that, but the savings rate went negative last year. People are dipping into their savings accounts to pay for their lifestyle, this money will eventually run out. We cannot keep up this lifestyle.

What we are seeing is a part of a larger pattern of wealth equalization between undeveloped and developed nations. Outsourcing of jobs, people immigrating, not just to the USA but to developed nation around the world, and the trade deficit are examples of this equalization. We are loosing money to other countries.

This is a free market at work. Unfortunately, the markets in undeveloped countries are rarely "free." They are usually oligarchic forms of capitalism wherein wealth in concentrated in the hands of a few. When people send money home, that money will be used for consumer goods, and will eventually end in the hands of the people who already have a lot of money and own the manufacturing capacity for those goods.

So in other words, this parasitic draining of wealth from America hurts the people doing it just as much as America.

the sky starts to fall at DU.

If I had a dime for every predicted repeat of the Great Depression, I wouldn't need to invest.

For example

Is 1995 Another 1928?

http://www.aei.org/publications/pubID.6022/pub_detail.asp

and that the 1950s saw a recesion that could have been called a depresion, and in fact some historians have. It was not AS SEVERE as 1929 and since 1929 the ones who do the acocunting are leary of uwing the D term.

"that the 1950s saw a recesion that could have been called a depresion, and in fact some historians have."

No economists or pundits will EVER use the D term again, no matter how bad things get.

"...since 1929 the ones who do the acocunting are leary of uwing the D term."

a tad low, one of the indicators is when you get over 10% unemployment... we did

The troops who came home in the early years did not encounter a fully boominig economy as the economy had to go from military production to civilian... but hey you can do your research on it

not about the "ones related to the banks" The Glass-Steigel (sic?) law that separated banks and investment houses has been repealed. We need to re-instate that law if we don't want to see a repeat of 1929 in the future.

No FDIC, an impotent Federal Reserve, very loose reserve requirements, etc... Banks simply did not have very much regulation. Now banks hold massive and secure reserves. A repeat of 1929 is simply NOT possible.

as a way to win votes in the next couple elections?

Preception is reality, and if told over and over that we are in a depression, it might sway enough voters to make a difference.

For example, if you call Republicans "Nazis" you will lose votes, not gain them.

Your failed (p)residency won't even support the investor class

There's still over two years remaining of the Boosh regime.

I know little about the wall street card games.

When it hit 11,000 it was! Of course, it hit 11,000 five years after it had already been there and higher.

And, of course, when it hit 11,000 it was "evidence" of the strong economy, but i'll betcha nobody says the drop is evidence of a weak economy.

The Professor

Oh, no, he wouldn't lie about our economy too, would he???

Given that the stock market is not a true indicator of economic conditions, I find it amusing how * et al were gloating when it went over 11,000 and now they are totally mum when it dives.

He lied!
The Professor

if we asked really nicely for you to post your thoughts on the market diving, how if affects the dollar, blah blah whatever comes to mind. You make it make sense.
Thanks!

But, remember that finding correlations in the economy that explain what's going on is easier than correlating it to the equity and capital markets. The markets move far faster and are based upon more guesses and gut feelings than do the economy, so they're less predictable.

But let's start here:

Remember that the markets are intended to create a free flow of capital around the system to support future growth, profitability to increase cash for future expansion of productivity, and new business ventures. For that reason, the risk is always extant. Hence, the combination of dividends and growth always exceed that of bank or bond money, since something has to motivate the investor to take those risks.

Well, when an economy slows significantly, and when a gov't is awash in red ink, two things happen. The demand for goods and services slow, so companies have lower cash flows, and the gov't has to start competing with the equity markets for investor cash. Since the economy has been artificially propped up with high gas prices at the consumer stage, high natural gas prices at the consumer stage, and excessive gov't spending (using lots of borrowed funds), the velocity of money goes up. This means one of two things: The production of goods and services must rise, or prices have to. (mv = pq! It's always true because that's how we set the whole capitalist system up.)

So, if interest rates rise to slow down price inflation, then the return to be had on investor money at low or zero risk have gone up. This, by itself, shrinks the risk premium of the equity and capital markets.

Add to this that the companies have lower cash flow, and the dividends to be paid fall off. So, now the risk premium is diluted even further. The big investors diversify into secured investments, large portions of their total portfolio, by taking profit NOW while the the gettin' is good. So, the markets take a plunge to accommodate that the supply is greater than the demand. (Hey, see! Microeconomics work as long as we're talking the micro level.)

Actually, this is good for the dollar, though because it stimulates monetary velocity and increases the M2 which means the same dollar can be spent more times and there is more liquid cash available. This will, in fact, hold the lid on prices a bit, and people can save a little more in better yielding liquid accounts, like your standard passbook account. The banks then recirculate this in loans to keep the velocity high. This has the effect of holding off any depressive effects on the value of each individual dollar.

Inflation is the single greatest lever on the devaluation of a currency. Devaluations are always precipitated domestically, and then that carries over into the international markets and trading partners. If the dollar value can be kept reasonably strong here in the states, it will help hold it steady overseas. At the same time, more dollars in the system as liquid or semi-liquid cash keeps our prices down, stabilizes the value, and will typically reduce the trade imbalances by making U.S. goods more financially attractive.

Now, if we could get a handle on the runaway spending of the Red Ink Republicans, the economy would be bolstered by renewing the attractiveness of the equity markets, which energizes innovation and new ventures.

So, i think this is a natural effect of fighting inflation and if managed properly (although that's the rub) can restore some economic stability and fight off the current stagnation.

That's all i can think of right now, and i have meeting to go to. If i think of something else, i'll post.
The Professor

and your translating this for us laymen is always excellen

Time to buy.

We don't make anything any more. We don't dominate IT any more. We owe more than what we take in. Our entire economy for the past 5 years was based on cheap borrowing, and now, borrowing costs are rising, so our economy will slow dramatically.

The stock market is reflecting the fact that the Fed will raise rates to somewhere between 6.5-7% before it stops. At that level, we will see a clear, no doubt about it recession.