The US congress just rejected the 700 billion dollar bailout plan… thank whatever powers may be out there. I am not a free market capitalist, but this kind of government intervention in the market is not only morally wrong, it is downright stupid. It is saying that if you gamble enough money you get a free pass. If it had passed it would also mean that the underlying issues would not get dealt with, so the US economy would tick on for a little bit longer (maybe through Christmas when the lack of consumer spending would finally make clear how much trouble the US is in…) and then fall even harder than it is falling right now.
Lets face it, the US economy is broken at the core. The points of failure are myriad, but a few that stand out are resource depletion, lack of regulation on commercial banking, lack of legal accountability on the parts of CEO’s and upper level executives, lack of morals on the part of politicians, and an almost complete lack of understanding of energy. That last one is probably the most serious. The US economy is based almost entirely on cheap abundant oil. The oil supply has not increased in any measurable way since 2005. Given the laws of supply and demand there should have been an increase in the amount of oil making its way into the economy when oil went to $140 a barrel, instead the demand dropped because people couldn’t sustain operating at that price. This means that the US has finally hit a hard limit to growth (had to happen eventually, no matter what economics says physics says that infinite growth can’t happen and physics trumps economics every time). Unfortunately the US economic system is not geared for sustaining. In the event of no growth the US is revealed as a pyramid scheme… and pyramid schemes only work so long as they can keep pulling new money in.
The entire house of cards is going to fall down, and it will do so faster than anyone is imagining. The markets crashed and then went into a minor rebound… with economists and stock market analysts predicting a rebound. The problem is, the rebound is going to be just as short lived as it becomes clear that there is no liquidity being added to the market and foreign investors are showing every sign of tightening up their money. The biggest threat to consumer confidence in the market is volatility… if the market can go up and down by more points in a single day than ever before in history and it keeps doing that, people just won’t feel safe. The only investors left will be gambling addicts (of course, it could be argues that the only investors now are gambling addicts). I have a small RRSP that is invested in the market. I am considering ending my contributions to it and investing in precious metals instead since they have always outperformed the stock market… there is probably a lot of that going on at the moment. Now, having said that… I will probably let my money ride simply because I have never seen that small amount that comes off of every pay cheque. Many other people look at it differently, they see the value of their retirement fund dropping like a stone and they pull out of the market… which makes everyone else’s retirement fund drop like a stone. In the end it becomes clear that the stock market is basically playing roulette.