06
Oct
08

Freefall

Right now the Dow Jones industrial index is in freefall… kind of scary for those  of us who watch these things. It is also scary that it can gain or lose a hundred points in five minutes. Predictable but scary.

In total, the market lost 32% since this time last year (counting todays low). That is a terrifying number that gets hidden in details like saying that the market is “only” down 7% today… In fact, the third biggest percentage drop in history was September 29th. Todays drop is a drop from a drop from a drop… and the percentages don’t really matter over a single day if the market goes down week after week. In fact, todays drop actually brought the market to a 4 year low.

This wouldn’t have been that important a few years ago. There were strong controls on banks and controls on insurance companies. At this point most insurance companies actually invest your premiums in the market. That is where their profit margin comes from… if a significant number of customers tried to make insurance claims against virtually any insurer right now it would probably take that insurer down. Pension funds are largely invested in the market as well and most banks use the capitalization from the market to make loans and to actually have the money to pay the depositors. Now, the FDIC in the US insures deposit banks… but the fed is printing money at a fantastic rate with almost no hope of repayment, so as things go on that money will start to lose real value.

This market loss coincides with the loss of over 600,000 jobs in the US so far this year, the likely winnowing down of oil supply, and severe gas shortages throughout the southern US. The American economy is tanking and it is being ignored or treated as a minor downturn that will correct within a few weeks. This may well end up trumping the great depression in terms of human misery, since the political will to take the actions that ended the great depression seems to be missing, and the US no longer has plentiful domestic supplies of oil to shore it up.

As a Canadian I will probably have a few months after the situation in the US becomes impossible to ignore. I intend to use that time to build my security consultancy (likely to be a good depression era line of work) and plant some crops. Maybe learn bow hunting as well, because bows and arrows can be made with readily available materials.

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