Black Tuesday?

Today could well turn out to be a day that lives in infamy. It’s a Tuesday here in the US and it follows a really bad day — some are calling it Black Monday — in the foreign markets (our markets were closed in observance of Martin Luther King), where some markets took tumbles of 15 percent or more.

The most infamous Black Tuesday ever was the Crash of 1929, where stocks fell 12% after a day were they fell 13% (Black Monday).

I don’t know what will happen. The markets, however, tend to rise and fall together, more so now that the global economy is no interconnected. I fear that a quick sell off will result in massive panics, as “investors” on Wall Street are nothing more than psychotic goofs, greedy beyond all comprehension yet as stupid as they get. Sheep if nothing else.

It is my sincere hope that calmer heads will prevail and the US markets will lead all the others on the upward path. I hope that the foreign markets went down in preparation to buy cheap US stocks, cheap because they’re undervalued and made even cheaper because of the weakness of the US dollar.

But my concern is that rather than preparation to buy, foreign investors view yesterday as anticipation of a massive US fall.

There are two undeniable facts that are staring us straight in the face: We’re in a worldwide recession and the credit crunch, precipitated by a Fed and other central banks who are too concerned with inflation (that they can’t do anything about) that they dragged their feet (and are still dragging them) too long and haven’t helped the situation.

While I don’t think the government should bail out financial institutions that made bad loans, nor should they bail out individuals who took on bad loans, I do believe that they have the responsibility to ensure that the financial markets have the necessary liquidity to bring buyers and sellers and borrowers and lenders together so that business transactions continue to take place. Prices will move, but the market should not go comatose. I think the mortgage market, and soon all other credit markets, have dried up and nobody is making money available to transact any business.

The Fed and other central banks need to inspire the credit markets to lend money, albeit at higher rates, to those folks wanting to expand their businesses, and to those folks who are feeling the pinch. For too many years, our economy especially, has relied on easy money, mostly conceived through easy credit, to fuel the consumption that makes up 2/3 to 3/4 of our aggregate demand.

NEWSFLASH: The Fed just cut the fed funds rate by 75 basis points. Is this the Fed pushing a string?

Like I said at the outset, today could get really interesting. I hope it gets interesting in a positive way, not the ugly way that my head says might happen.

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billspaced

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billspaced - January 26, 2008 Reply

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