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Financial Carnage Continues
Oct. 8th, 2008 04:22 pmSo the central banks decided to cut interest rates. Hunky dory. This is just another stupid move in a long line of stupid moves, of course. By the time that cut filters through to where it actually affects rates charged for consumer or business loans, it will mean that in the US, you can make money by BORROWING. I've been saying that the incessant rate-cutting by Greenspan and now Bernanke and cronies was inevitably heading in that direction. Now it's unquestionably true that the cost of borrowing money will be less than the annual inflation rate in the US. So when you pay back a one year loan, even with the interest, you will be paying with a total dollar amount that has less purchasing power than the dollars you borrowed had when you borrowed them.
This is what people may have thought they were doing when they took out those jumbo home loans during the last decade, only they were expecting the value of the property to increase rather than the value of the dollar to drop. That didn't work out very well, and neither will this.
Our government has been saying that consumers are overextended and need to cut back on borrowing. Yet when borrowing stops, they think they need to stimulate it to start again. Yes, I know, it's business borrowing they think they need to stimulate, but the same rules apply there. Ben Franklin was right: "A borrower nor a lender be." But when the best you can earn on savings is less than the inflation rate, why would anyone save money?
And what did the rate cut get us? Even when coordinated by central banks all over the globe? England, Germany, Hong Kong, and France saw a 5% drop in their markets today anyway. Japan dropped almost 10%. Russia dropped as much as 15% in early trading and regulators there closed the markets, stopping all trading to prevent further declines. Today's Dow in the US is at about the lowest it has been in 5 years, down 35% from a year ago, down 10% just in the last week or so, and down 2% today, though it was down almost 3% at a couple of points during the day's trading.
Obama's proposed answers may be wishful thinking (probably are, by my understanding) but McCain's proposals are just stuff that has been tried repeatedly in the past and never succeeded. No real help from that direction. Experts interviewed on Chicago radio today predicted 8% unemployment nationally by the end of the year. Currently unemployment stands at about 6.8%, higher or lower in some states. Major retail chains, including discounters like Walmart and Costco, are complaining that their sales are down. I predict a very bleak holiday season for retail. Here in the northern Illinois area, retailers say they are hiring 25% fewer part time employees for the holidays, so they have already planned for a downturn.
Tighten your belts. The rollercoaster hasn't even hit the top of the hill yet and it will be all downhill from there. We need a major shake-up. If your congresscritter voted for that stupid 700 billion "bailout" I suggest you vote against him/her, no matter who will win if you do that. The whole lot of these turkeys need to be kicked out. If the replacements are no better, we should kick them out two years from now, and repeat until they get the message. Forget the squabbling about abortion, gay marriage, or gun control. A return to the great depression of the 1930s will make those seem like irrelevant, meaningless issues.
An interesting and related point here: county sheriffs in some Illinois counties have announced that they have stopped acting on eviction/repossession orders for home mortgage defaults. I'm not sure what all the implications of that are, but it's certainly a sign that things have slid much too far down already.
This is what people may have thought they were doing when they took out those jumbo home loans during the last decade, only they were expecting the value of the property to increase rather than the value of the dollar to drop. That didn't work out very well, and neither will this.
Our government has been saying that consumers are overextended and need to cut back on borrowing. Yet when borrowing stops, they think they need to stimulate it to start again. Yes, I know, it's business borrowing they think they need to stimulate, but the same rules apply there. Ben Franklin was right: "A borrower nor a lender be." But when the best you can earn on savings is less than the inflation rate, why would anyone save money?
And what did the rate cut get us? Even when coordinated by central banks all over the globe? England, Germany, Hong Kong, and France saw a 5% drop in their markets today anyway. Japan dropped almost 10%. Russia dropped as much as 15% in early trading and regulators there closed the markets, stopping all trading to prevent further declines. Today's Dow in the US is at about the lowest it has been in 5 years, down 35% from a year ago, down 10% just in the last week or so, and down 2% today, though it was down almost 3% at a couple of points during the day's trading.
Obama's proposed answers may be wishful thinking (probably are, by my understanding) but McCain's proposals are just stuff that has been tried repeatedly in the past and never succeeded. No real help from that direction. Experts interviewed on Chicago radio today predicted 8% unemployment nationally by the end of the year. Currently unemployment stands at about 6.8%, higher or lower in some states. Major retail chains, including discounters like Walmart and Costco, are complaining that their sales are down. I predict a very bleak holiday season for retail. Here in the northern Illinois area, retailers say they are hiring 25% fewer part time employees for the holidays, so they have already planned for a downturn.
Tighten your belts. The rollercoaster hasn't even hit the top of the hill yet and it will be all downhill from there. We need a major shake-up. If your congresscritter voted for that stupid 700 billion "bailout" I suggest you vote against him/her, no matter who will win if you do that. The whole lot of these turkeys need to be kicked out. If the replacements are no better, we should kick them out two years from now, and repeat until they get the message. Forget the squabbling about abortion, gay marriage, or gun control. A return to the great depression of the 1930s will make those seem like irrelevant, meaningless issues.
An interesting and related point here: county sheriffs in some Illinois counties have announced that they have stopped acting on eviction/repossession orders for home mortgage defaults. I'm not sure what all the implications of that are, but it's certainly a sign that things have slid much too far down already.
