What a week, what a week..
Well, if your an average American trying to follow the markets and thus, the economy.. what a terrible week!
The DOW officially ended well bellow the 12,000 mark. Most American's gauge the economy on the Stock index known as the DOW Index. some follow the
S&P, which actually imo, represents the economy better then the DOW, but the DOW is most prevalent..
Of course, the Stock Index's do not exactly correlate what the economy is actually doing.. otherwise we wouldn't be in this mess, as just a year ago
we where at 14,000 on the DOW .. everyone remember all that money you had a year ago? Me either.
But the economic woes we ARE feeling, us, me and you, the REAL consumer.. these should be over? Why are we still hearing economic concerns, problems
with the banks, stocks falling, international tensions building..
I will tell you why.. things are NOT alright, they are no where near alright! The DOW falling is not the action that causes the economy to fall, but
rather, the DOW dropping is just one reaction from a faltering economy.
Inflation is rising - fast .. which is hurting the economy, relatively severely..
Oil Prices - technically not included in inflation measurements (mumbles absurdities) The cost of increased Gas, increased FOOD, water, ENERGY, Health
care .. and no pay increases .. the American population is spent.
Stimulus Checks - The economy is posting losses, the retail sector .. losses .. service .. losses .. just wait till the summer season ends.. massive
losses in areas dependent on tourism ..
An economy crash is not a sudden affair. We note the "beginning" of an economic recession/depression when there is a sell off.. like in the 80's
or 20's .. in reality the stock markets falling are only reactions to the real problems. Extended credit, cheap credit, low interest rates,
inflation, lack of consumer confidence, poor government oversight, criminal banking activities .. THESE are the combined causes of the reactions that
we see reported on the news.
For the week, the Dow fell 3.8%, the S&P 500 fell 3.1%, and the Nasdaq fell just under 2%.
3.8% in the US Market is worth more 0's then I care to type.
So what is going to happen? Everyone has an answer, always different so here is my take.
The economy will progressively get worse. Stimulus money or not, the billions wasted on it have been dispersed already and did nothing to help the
economy (except walmart). Major corporations are already implementing and preparing contingency plans in the case of continued weakening consumer
confidence. The Housing market will continue it's decline. People's equity will begin to vanish before their eyes, and as their equity vanishes,
so does their perception of self worth/wealth and thus, further weakening of consumer confidence.
Banks will progressively get worse, as inflation tears through the wallets of sub prime mortgage holders, the ability to pay the debts will continue
to pick up, and many billions will need to be written down.
Collapse/consolidation of banks - Big banks taking big hits will find themselves insolvent, and unable to pay the debts they owe. The fed may
force/encourage a merging of banks, but in the worst case scenario, we could see a massive bank actually collapse. Bear Sterns was damn close. And
the economic impact, would have been massive.
Cutting jobs. But even worse then cutting jobs, which has not accelerated to bad so far, NO NEW jobs are being created. We have seen a rise in
unemployment, and Bush told people why, but people did not understand. No New Jobs. Graduates - I feel for you .. the job market is terrible for a
new graduate, and many will be aimlessly wandering around job sites looking for an opportunity. More jobs will be cut, and once again, consumer
confidence will suffer. Those loosing their jobs, once making 50-70k a year, will default on loans.
Credit - the NEXT big bubble to burst will be Credit Card Debts. Not only that, but the unfair, unethical and highly illegal system of "credit
scores" will leave much of the nation with a credit score so low they cannot buy on debt alone, and while cash reserves are slim to none, consumer
confidence will continue to drop.
But what could be the biggest single factor to jump start a recession .. is stupidity. We count on it from our politicians, that in a time we need
them, they screw up. When things like this are spoken with regularity:
"There's a continuing erosion of the financial sector and I don't see it getting any better anytime soon," said Len Blum, managing director at
Politicians do dumb, idiotic things like .. regulating oil speculators..
To underline his case, Rep. Bart Stupak, D-Mich., said speculators now control 71% of oil on the market. That means only 29% control the physical
oil being traded, down from 61% eight years ago.
Ironic that.. without oil and oil based products and other energy dependent sectors of the economy .. our GDP would already be showing a drop, and
thus, a recession.