What I find most scary about the current market turmoil are the shenanigans it fuels on Capitol Hill and its immediate environs.
Uncle Sam is, I worry, on the verge of creating the same kind of "regime uncertainty" that Bob HIggs effectively argues deepened and prolonged the Great Depression.
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It seems that some members of the house were told that if they voted against the bailout, that the stock market would drop several thousand points, there would be panic, and there would be martial law.
Short of bombing Iran, I didn't think it was possible for the Bushniks to make things any worse for their nominal partisans so late in the game. Shows you what I know.
First, people opposed this bailout. Then when the market dropped after the first defeat, people believed the Republicratic scare tactics and changed their tune, so House Republicans waffled with John McCain leading the way. Now, the market's diving again. He's toast. Republicans who might have earned some points for better-late-than-never principles, if nothing else, are toast too.
And what's happening to entitlement tax revenue as Congress pours it out like water? Its price is rising, of course.
And what's happening to entitlement tax revenue as Congress pours it out like water? Its price is rising, of course.
The dollar price, or the political price?
The dollar price. I mean the price of benchmark (ten year) Treasury notes, in case that wasn't clear. The yield is below 3.5% today. It hasn't been so low since 1958, and the CPI-U was only rising around two percent annually then, so the 1958 yield was positive. CPI-U inflation is five percent now, so the "flight to safety" has people accepting a negative real yield. When that's "safety", the alternatives aren't very attractive.
Peak Rent
Bad link above: Peak Rent
Don's claim is both correct and very important. In the name of helping to address a supposed crisis of "uncertainty" as to the value of mortgage-backed securities, the government has created a far greater crisis of uncertainty, to wit: a crisis of uncertainty as to the future course of taxation, inflation, and financial regulation. It should be evident that stocks did not tumble again today because certain securities that the Treasury now promises to buy have gone from being treated as worthless to being treated as "more" worthless!
We are in "Obama Effect". With the possibility of an Obama presidency looming ever larger, the markets must discount the cash flows more heavily to account for his promised increases in spending and taxes, both a big drag on productivity and therefore, future cash flows.
That's funny, what I find the most scary about the current market turmoil is the seizing of the credit markets, the destruction of trillions of dollars in retirement savings, and the object lesson being absorbed by the young that investing for the long term in anything but government-guaranteed paper is dimwitted.
Tom Kelly,
Any entities that suffer an economic loss from Obama winning have no one to blame but themselves, since they could have hedged away the risk in the political prediction markets.
If they were too foolish to hedge, it is better that they have less money to be fools with in the future. That's how markets work.
As I was watching the S&P 500 futures plummet around 9%, I thought "gee…sure glad that short ban in combination with the TARP fixed everything". What a joke. The government has done nothing more than distort the market and it will continue to do so with more regulation.
Martin, I'm not very happy with Bush and the Republican party (an understatement, really). But, congress belongs to the Democrats and their biggest objection to the bailout bill was that it didn't have enough pork in it. Imagine if they'd gotten their wish to allow bankruptcy judges to adjust mortgage terms. I don't really see how the other party is better. And Tom Kelly is correct, IMO. Faced with the very real prospects of a Marxist president and the current Democrat majority in congress, the markets will sell off on that alone (although, that doesn't account for all of today's sell-off).
I blame the rich, of course. That dick who headed Lehman Brothers walked away with $500,000,000 from 2000-2005 while his company went bankrupt hurting shareholders, employees, etc.
We must tax the rich to pay for this mess and to keep a lid on their nefarious activities. They most certainly fund and support right-wing, pro-greed, reward-failure economists like you guys. SHAME! Greed Capitalism is an evironment destroying, species extinguishing, immoral activitivy that props of 3rd world fascist dictators like that turd in Teheran. What would I replace Greed Capitalism with? A BIG FAT confiscatory tax on those who collect interest for a living, and live the good life on the backs of others. I would take back all their ill-gotten goodies and put them to work filing bankrupcy documents for the government. They caused it; they must pay for it. Sounds fair, doesn't it?
Methinks,
Since the nationalization was proposed and executed by Bush, Bush is a Marxist. Why do you suppose the markets failed to sell off during the Bush presidency, if it is Marxist presidents which the markets dread?
Russ and I are pretty laissez faire about commenters here at the Cafe. Vigorous, even heated, debate is fine.
But please stop with the gutter language.
Close examination of trading patterns suggests that the news the market was digesting was this: McCain on Palin. The collective judgment of the market was this: An exaggerated interpretation of McCain on Palin.
Since the nationalization was proposed and executed by Bush, Bush is a Marxist
Good point.
Why do you suppose the markets failed to sell off during the Bush presidency, if it is Marxist presidents which the markets dread
Because nobody thought he was one until now. There has long been an expectation of a sell-off if Obama won the white house. However, how much one variable is responsible for a sell-off is impossible to determine with any accuracy – unless it's election day and nothing else is going on. I think we'll get much worse if one party controls both branches – whether they are Democrats or Republicans. I fear that in the current environment, if the two branches are of the same political party, they'll pass a lot more legislation which will strangle the economy. I'd rather the two branches are divided between the two parties so that they spend their time fighting and posturing rather than passing legislation and expanding regulation.
Good point about hedging (always encourage it) – although, I'd just use financial instruments to hedge financial assets
"There has long been an expectation of a sell-off if Obama won the white house."
People on Wall Street must be stupid. Why would they sell off when Obama gets into office? Even a cursory look at the markets show they always do better under a democratic president. And now Bush has lowered the bar so much Obama will look like a genius as the stock market recovers from its republican lead stagnation.
That's the facts methinks. You do this for a living and you actually believe the stock market does better with republicans? Wow that's like being a pediatrician and telling your patients not to get vaccinated. Remind me never to get investment advice from you. No wait do give me investment advice and then I'll make a fortune doing exactly the opposite.
People on Wall Street must be stupid.
Well, we can't all be as stupid as certain doctors from California, but we try our hardest. Of course, your ignorant rant would have been better if you understood the meaning of the word "stagnation" (have someone look it up and explain it to you). A market which is down nearly 30% ten months into the year can be described as "falling", "tanking", "selling off", etc. It cannot be described as merely "stagnating".
You mean "Marxist" or "deep shit"?
Sorry. I just can't help myself.
A toast to Martin Brock, a man who has no idea that his telling stories about daily market fluctuations does not make them true.
Here's to you Martin, ignorance is bliss!
I'm sorry are we still denying that Obama is a Marxist and McCain is a shit?
You've got it wrong, Methinks. You wouldn't know what you believe about anything if muirgeo wasn't here to inform you.
Ok, sarcasm aside, muirgeo you're demonstrating how little you understand the libertarian mindset, in general, and Methinks' posts, in particular.
She never claimed that "markets do better under Republican presidencies." You'd look more intelligent if you'd stop arguing with shadows.
Furthermore, you're also demonstrating how little you know about economic history. Look at the markets under Jimmy Carter. More specifically look gas prices.
As Dr. Don said in another thread, you're out of your league here, sir. I'd go so far as to say you aren't even in the right sport.
Specifically, what story about daily market fluctuations do you mean?
I don't "explain" daily market fluctuations, because I understand market efficiency. I note that markets have fallen after the bailout bill, because they have, and I comment on what I expect many people's perception of this sequence of events to be.
Now, if you have a specific reply to a specific assertion, I'll respond to that too.
Question for the group: if credit markets were "frozen" [and I am assuming that if they were tighter than normal, it was do to mortgage bond holders getting tired of not being repaid on schedule], wouldn't the more prudent thing congress could have done would be to eliminate taxes on interest so that lending funds to the market would be on equal footing as the home loan interest deduction and the preferential capital gains tax treatments on the sale of a home?
Would this have worked? Would it have been less costly than the $700 billion?
LCJ,
It's pretty clear that the TARP didn't loosen credit at all. A large part of the credit freeze is the deleveraging that is happening and must happen and no amount of tax cuts on interest or throwing taxpayers under the bus is going to soften the effects of that. Simply put: if we are extended credit based on expectations of future productions, it seems that we have extended too much credit against an overestimated future production. The only way to really "unfreeze" the credit markets is to loosen lending standards again. I don't think we want to do that. We obviously aren't going to be repaid the loans we've already made.
Besides, for businesses, interest expense is already levied on pretax income.
TL:
It is ludicrous to suggest that you can hedge away the risk of an entire economy going south.
Especially when short selling is currently banned on 20% of the S & P 500.
Political prediction markets are way too small and thinly traded to hedge any serious risk.
Markets aren't down because individual companies are in trouble, they're down because the entire economy is in trouble and will be in much bigger trouble if Obama and his big spending and regulating Democrat comrades have unchallenged control of our government.
My preference is to bankrupt the Forbes 400+ rather than bankrupt the remaining 300,000,000 U.S. citizens or the U.S. government. Why do you prefer the latter? Inviolable property rights? Hahaha.
My preference is to bankrupt the Forbes 400+ rather than bankrupt the remaining 300,000,000 U.S. citizens or the U.S. government.
It's not a question of preference anymore. We have all been bound together by the intertwining of government and finance.
I think the right-wingers' grand plan is to bankrupt the U.S. government. That would kill Social Security, Medicare, etc., which they've hated from their inception. But then how would the Pentagon get funding? It remindes me of that old bumper stick that said something to the effect: Will the day ever come when the Pentagon has to hold a bake sale, and our schools will get adequate funding? Right, the Pentagon will hold bake sales to get the 4 or 5 hundred billion that they are currently receiving each year. Are the Rethuglicans for real? Why are they not discredited all the time and everywhere? Can I also blame mainstream economists, who must not understand hardworking Main St. very well, for pushing or failing to condemn Bush's tax cuts at a time of 2+ wars. Where was the outcry? Where was the outrage? Disturbing, but true recollection on my part. I was there; I witnessed the disaster in the making.
That's right Trumpit. Because they disagree with you they are clearly either brainless or corrupt. Keep thinking that. Please troll someplace else.
I like Troll House cookies with MnM's. You can send me your recipe to my Email. I'll chew you up with every bite. You can vote for McBush and his trollopy-looking wife, Cinderella McBush, if you like. I'll cancel your vote, I'm please to say in a totally trolling way.
I'm just sick to death of the trolls. Either ban them or I'm gone forever.
who must not understand hardworking Main St. very well
Hard working Main Street will have nowhere to work if you bankrupt the Fortune 400 and tax away wealth as wealth is invested in job creating activities. Go read some history about the Glorious Communist Revolution of 1917 and what followed. You propose nothing new or interesting. Everything you're whining and longing for has been tried before and failed. What keeps you from knowing this? Willful ignorance or profound stupidity? Which is it?
And clearly because I called you to task I must be voting for McCain. Keep it up, Trumpit, you'll go far.
I'm well aware of the obnoxious practice of calling someone you don't understand or that you disagree with a troll. In a fit of anger, I've called someone a troll. Grow up boys and girls! It saves you the mental effort of having to seriously question your own dubious values and views. Keep it up, and you will be banished to censorshipland, under the bridge, with your fellow trolls.
After your 401-k crashes to worthlessness, you may rethink your support of the Forbes 400, Methinks. When the Social Security checks stop arriving in the mail or by direct deposit is when we, as a nation, will be ripe for another Civil War. Yes, it will be a class/culture war. I hope it doesn't go nuclear. Oh what a great idea for a suspense novel: a nuclear civil war. If only I knew how to write.
Swing by Wikipedia and look up "strawman", "ad-hominem", and "irony". I'm done feeding you.
Methinks,
When the stock market is lower then it was nearly 8 years ago when Bush took office I'd call that stagnation. If you're talking about economic growth we need to subtract out the growing debt as this fake toxic paper valued appropriately. Now when it goes up from like 3,000 to 10,000 like it did under Clinton that's a good thing right.
If you want to bet against Obama and history go right ahead… I'll be betting against you and with history. Because my history beats up your politics.
Nope. It was just an illusion. Greenspam said, "irrational exuberance" and then went back to pumping more air into the bubble.
When the Social Security checks stop arriving in the mail or by direct deposit is when we, as a nation, will be ripe for another Civil War.
Yes, I can just see the army of seniors, fresh from hip replacements, inching toward me with one hand on the Z-frame and the other brandishing a cane. The ones in early stages of dementia guiding the ones who can barely remember to walk or pee in a toilet… I dunno, Trumpit, I'm a small but surprisingly strong woman. I think I can take 'em. Even without nukes.
One question, though, Trumpit…since bankrupting the fortune 400 and imposing a wealth tax effectively stops all wealth creation, how do you plan to fund Social Security on a going forward basis? Wouldn't the lack of funding lead the oldies to raise a Z-frame army to come whup our butts?
Oh what a great idea for a suspense novel: a nuclear civil war. If only I knew how to write.
If you knew how to write, you might be familiar with the term "Pyrrhic Victory".
Muirdiot,
In your clearly arduous and exhaustive study of history, did you somehow miss the chapters called "The Stock Market is not the Economy" and "The Stock Market Bubble in the Late 90's". Likely, you stumbled across these bits of information somewhere, the words bounced around a little in your empty head and then disappeared into the great abyss along with everything else of any value.
I'd love to stick around for the great smackdown of your history and my politics, but I find your love of WWF a little low brow for moi.
Your ageist remarks aren't worthy of a response from me, but they appalled me so… Because old people are weaker and infirmed in some cases, you feel it is okay to take away there SS check? You simply want to kill most of them off, do you. Are you an SS Nazi type? You sterotype old people in a truely artificial and hateful way; I bet most of them can kick your scrawy ass, cane or no cane. If millions of people, old or otherwise, think they are going to die from starvation or by being out on the street, you are just asking for another 1917-type revolution. The 2nd amendment means that they can go ballistic with powerful guns galore. Many old people know how to shoot a gun straight. Watch out for flying bullets! You might be a necessary target to take down.
Are you an SS Nazi type?
How'd you guess? And I'm half Jewish to boot, so you can imagine how well that went over when I joined the party.
I bet most of them can kick your scrawy ass,
Oi! I only wish I had a scrawny ass. I told you – I'm part Jewsish and my ass is the Jewish part.
The 2nd amendment means that they can go ballistic with powerful guns galore.
'kay…but they're old. So, won't they forget where they stashed the guns or the ammo or both?
Many old people know how to shoot a gun straight.
Well, I'm sure they know how to shoot straight, with age comes the question of execution.
So, uh…once we're all done with the revolution and all wealth creation has been successfully squashed, how do you plan to fund social security? 'Coz after the 1917 revolution, those oldies who didn't have family members willing to take them in died in the streets like mangy dogs.
once we're all done with the revolution and all wealth creation has been successfully squashed, how do you plan to fund social security?
Methinks, don't you listen? The government will take care of the elderly!
People on Wall Street must be stupid. Why would they sell off when Obama gets into office?
Yeah. Didn't they read the bumper stickers?
"…once we're all done with the revolution and all wealth creation has been successfully squashed, how do you plan to fund social security?"
Wealth creation… oh yeah boy would we ever miss them and all their wealthy paper they make. Wow where would we be without them.
Kinda like saying good thing we have bank robbers so policemen can have jobs. Actually it's even stupider then that. No the top 400 wealthiest people could die tomorrow and we'd likely be better off.
Well, the above was particularly ugly… which is sort of fitting given the topic. Yes, I'd say that regime uncertainty is going to be a big player. Wealth grows best in a climate of trust, but Obama, like FDR before him, ramps up the politics of division. This could get really ugly.
No the top 400 wealthiest people could die tomorrow and we'd likely be better off.
Two useful idiots. Goody.
Fat Tails make life worth living, really.
Trumpit, the power of your intellectual prowess is just so overwhelming We thank you repeatedly for bestowing the illumination of your profound vision upon us unworthy types.
Where can I get some of that?
LOL, Martin. I almost choked on my snack!