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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
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Thursday, November 13, 2008

Desperate Thursday

Wow! What a market meltdown. Dow is at 8,282, and it looks like we may challenge the DOW 8,175 I have been pointing out for weeks. And if we do, we could see 1929 all out collapse.
The bad news from all sectors is overwhelming. After a while, only "really really bad news" is bad news. All others news is eh, yea, we'll live.
Now for the REALLY REALLY bad news. (Cheery fellow ain't I?)
( NOTE: I am stealing this story directly from market ticker, with my own spin. )

I wrote about this a few times. What IF people don't buy American bonds? What choices does America have on its binge spending? How to finance it?
This cross roads has hit today, the fed actioned 12 billion in short term loans (17 days) and the government sold LESS than 10% of the debt offering.
Why? Interest rates have gone so low, may as well keep cash under your bed.

Three simple roads.
1) Stop spending. (HA! I crack myself up)
2) Increase interest rates to attract buyers to American Bonds. Sell either longer term bonds (higher interest rates) or raise short term interest rates.
3) Go banana republic, aka Germany 1929 and just "photo copy" cash.

Item 1 is out of the question, one reason is we are so far into this shithole, hard to stop the train.

Problem with number 2 is nobody in this environment wants long term bonds. Why tie money up for 1 year, 10 years or more in this environment? If short term rates are raised, well, good night, we will have an all out business collapse (as we SHOULD) when businesses have to pay higher interest on their loans. Great Depression arrives abruptly.

Or item 3, pretend we can just photocopy cash, hand it out, and see where that takes us. That takes us to the US Dollar collapsing and the US down the drain. Revolution time.

My hope is the government takes an about face and goes with 1. If they do, I lose incredible amounts of money. But the country will be better off, and I would gladly accept my personal fiscal disaster.

But I don't believe number 1 is an option, so its 2 or 3. Raising interest rates will also hurt me hard, and the country hard in the near term, but probably the healthiest for the country. It will likely start a death spiral in housing.

Number 3 is what I fear....and I am counting on. This administration at every step has taken us further down the rabbit hole. They will do number 3 but with some "fancy twist". Not direct printing, but in the end, that is what it will be. And once the market actually understands the trickery, well, I hope you have gold coins at home.

And if you are curious why all this giving away money has not helped ONE iota, but instead has made the situation worse, read these two articles from Frank Shostak of the Ludwig von Mises Institute.

Explains the basic concept of money when it is generated by "non-productive consumption".
In a nut shell, you have to do work to "generate" money, any other way is in effect, counterfeiting money.

Why Doing Nothing Is the Best Policy to Revive the Economy

In any event, hang on, either we crack or rally to the likes we haven't seen since...two weeks ago?

Lots other news out there, but this is the main event, stocks collapse, US bond raise interest rates, and if either occur does the dollar rally or fall. Everything else is chump change.


  1. I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.



  2. Thanks!
    I gotta read comments more frequently. :)