Thursday, September 18, 2008

The Markets Can Get Worse

The stock markets are down and investors are worried about when this falling stock market will reach bottom and start back up. Sell-offs are a normal part of any market. It all revolves around the fact that there are more sellers than buyers and the market makers continue to drop their bid with each trade. When the buyers come back into the market the trend will reverse and the market will go back up as the price of individual stocks go back up.

But, this time, it may take a lot longer to bring stability and equilibrium to the markets. For several months, we have seen a lot of money leave this country. Oil purchases have taken a tremendous amount of money out of our domestic economic system. That along with all the products that are being bought from overseas, means there is much less money in the economy. We have spent our money on gas and oil and other products and we have sent too many dollars out of the country. The increase in oil prices alone has drained a tremendous about of cash from our domestic economic system and our personal wealth has suffered. If $4 a gallon gas has not caused you any problems with your budget then you are among the wealthy few, but if it has caused you to change your buying habits, then you can understand what you have not been able to buy. Your purchasing power has declined as a result of the greater expense to fill your tank.

Move the price of one thing, oil and see what happens to the economy. Our president and vice president just gave the oil companies, their buddies, a big pay off or present. Take a look at what the oil companies made off this jump in the price of oil. Now that the economy is in the tank, no pun intended, the price of oil is coming back down. You don’t need much oil if you are in a recession or heading in that direction. Oh, I forgot, we are not in a recession, we are in a mental depression, and we are a bunch of wieners. Did you know Phil (Ph.D.) Gramm is back advising McCain on the economy and his campaign? Get used to him, he is going to be McCain’s Secretary of the Treasury if McCain get elected. Watch what happens then.

The election of McCain-Palin will put our domestic economy in the tank. If you think things are bad now, just wait they can get worse. This duo knows nothing about running a government and working with the economy at the world level. The foreign element in this equation, I am talking about the other major economies of the world, will back out and off of this ticket as soon as the day after the election. That is my prediction. Those two unqualified people running the largest economy in the world with their ideas about deregulation will spell more pain and suffering for the American people. There could even be a revolution against the injustices perceived to exist on Wall Street.

The world is watching this presidential election with a great deal of interest because investors around the world that hold billions of US dollars and are invested in our stock markets, have skin in the game. Without regulation and oversight, the corrupt practices in the securitization of mortgages into mortgage bonds and the bond rating process, will mean that that kind of business will dry up. Remember, the problem was not with the idea of securitizing mortgages, but the lack of work that went into the rating process. If this one element is not changed, the same mistakes will be made again with the same bad results. The world is watching to see if we have enough sense and the will to correct the abuses and the corrupt practices that exist in our markets. If you think the market is low now, just wait until McCain is elected and watch what the world of investors outside the United States does with their money. They do not have to put up with a corrupt system. They can cash out and take their money to other stock markets. We, the United States, may be the largest game in town, but we are not the only game in town. In fact, the process of selling US dollars has been going on for a while now. It is part of the reason the price of oil had gone up.

Think about it.


Hyphen Mama said...

This is so informative. I'd love to see a post (maybe you've written it and I've missed it) with specifics of what a new president SHOULD do to stop the hemorrhage.

moneythoughts said...

Thr Republican Party has been trying to disassemble the New Deal and all the laws that protected the individual since the Reagan administration. There once was a Glass-Stegall Act that controlled banking. Senator Phil Gramm wrote the legislation that destroyed it. There are Security Laws from the 1930's and 1940's that give the SEC power to act, but since the Reagan years the Securities & Exchange Commisson has been made useless by design. I have been writing about the need for regulation, oversight and auditing since the very beginning of my blog which I started on February 13, 2008. Check back on any number of my postings to read about the explanation of the bond market, sub-prime mortgage bonds, the rating agencies that passed out AAA ratings like candy, and a whole lot more. Read some of the comments people have written as well, they too are from people that know what I have been saying.

Bottom line: regulation is necessary, it is part of the cost of doing business in a dynamic economy. The next president needs to put the traffic lights back up and turn them on. Without the proper regulation and oversight, you have uncontrolled greed. Today, we are all paying the price of that unchecked greed by Wall Street and the mortgage business.

WetPaint said...

Hi MT!

OK, so the Gov is bailing out AIG. Doesn't that mean the taxpayers are bailing out AIG? Isn't that insuring ourselves, more or less?

If the taxpayers bail out every firm in trouble, won't taxes have to go up, and then purchasing power will decline even further?

The Gov bailed out the mortgage companies. Doesn't that mean you and I did? That I, personally, subsidized a privatized company, and my money went toward a CEO's fat parachute? And that I helped pay off some other guy's mortagage, when I made the sensible decison not buy what I can't afford?

I am tired of bailouts. I think the immediate drastic pain would lead to long-term gain. I learn this from teaching children- remove accountability, and you remove all incentive to do the right thing. I'm not a big fan of tough love, but this baby is out of control!

And- I can't believe Mr. Mental Recession is advising McCain. Why aren't Obama's people all over this for ads? Montage that guy's words with pictures of the employees looting Lehman brothers.

Robert said...

Yes, gas prices are taking out a lot of money. I've always been into bicycling and am also an advocate for public transit as well as more efficient, compact and denser residential development.

Oil prices come down when demand comes down as the economy weakens, but oil's long term outlook is more expensive. The easy to tap reserves are depleted and harder to extract more expensive oil is what's available for the future.

Like the need for some regulation in banking, we also need good energy policies both locally in city planning as well as nationally.

moneythoughts said...

Hi Robert,

Thanks for your comments. There was banking regulations and there still is. The Federal Reserve has a series of rules that banks must follow, but the big one that was destroyed was the Glass-Stegall Act that came out of the Great Depression. The Republicans want to eliminate regulation because they believe in Lazzie Faire economics. Let the markets police themselves. Sound good, but in reality it doesn't work.