Having had a weekend to process the President’s economic stimulus plan, the global markets have spoken.
And they have replied with “You’ve got to be kidding me.”
European and Asian stock markets plunged Monday following declines on Wall Street last week amid investor pessimism over the U.S. government’s stimulus plan to prevent a recession.
The U.K. benchmark FTSE-100 dropped 3.9 percent to 5,673.1; France’s CAC-40 Index plunged 4.5 percent to 4,861.2, while Germany’s slumped 5.35 percent to 6,922.7.
In Asia, India’s benchmark stock index tumbled 7.4 percent, while Hong Kong’s blue-chip Hang Seng index plummeted 5.5 percent to 23,818.86, its biggest percentage drop since the Sept. 11, 2001, terror attacks.
Investors dumped shares because they were skeptical that an economic stimulus plan President George W. Bush announced Friday would shore up the economy that has been battered by problems in its housing and credit markets. The plan, which requires approval by Congress, calls for about $145 billion worth of tax relief to encourage consumer spending.
“We’ve taken our lead from the Asian markets who have not been impressed by the U.S. There’s debate if there’s going to be a recession in the U.S. I don’t think there’s much chance of that though,” said Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers Ltd. in London.
Concerns about the outlook for the U.S. economy, a major export market for Asian companies, has sent the region’s markets sliding in 2008. Just last Wednesday, the Hang Seng index sank 5.4 percent.
“It’s another horrible day,” said Francis Lun, a general manager at Fulbright Securities in Hong Kong. “Today it’s because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won’t help the economy recover.”
Keep in mind this happened on an idle holiday weekend Monday. There was no major announcement over the weekend, no major market numbers announced, no figures coming out. The world on Friday was pretty much the same on the world today. Today, the markets are closed in the US. Tomorrow, they will not be.
The term “bloodbath of Biblical proportions” will not begin to describe the markets tomorrow and most likely from this point on.
So what changed? What caused the cliff? Over the weekend, something changed to the point where the Nikkei lost 2% within the first few minutes of trading and it only got worse from there. As I’m writing this, it’s 4 PM in London. The European markets have dropped almost 6% in some cases.
What changed was psychological. Asia, and now Europe, have both realized that the question is no longer “Will the US downturn qualify as a recession possibly causing a global downturn?” and not even “Will the US recession qualify as a depression, possibly causing a global recession?” but “How long will the US Depression last and how much damage will it cause globally?”
That seems harsh, if not alarmist. But let’s keep in mind we’re depending on George W. Bush to be economically prudent and not political. One one hand, Bush’s legacy will motivate him to do something, hence the economic stimulus package. He does not want to be remembered as another Herbert Hoover.
On the other hand, the people doing the something are largely comprised of Helicopter Ben Bernanke, Henry Paulson, and Bush’s closest advisors.
In other words, the Eurasians have seen our response to Big Shitpile (tm, Atrios, still) and their response to OUR response has been something along the lines of abject horror, panic, and resignation to a particularly unpleasant fate. They have no confidence in us, because they are looking at us making more tax cuts and handing out some refunds and have realized that we simply refuse to grasp the depth of the problem.
They think we’re fucking crazy. And they’re right.
We’re throwing a $145 billion dollar or so bandaid on a $14.5 trillion dollar or so problem. It’s that bad. Our response to the issue is literally, a One Percent Solution. It’s two orders of magnitude below the order of the problem, and I’m being kind. We ran up another 3 trillion in national debt just screwing around with Iraq, and that when our economy was supposedly good.
Eurasia is upset because they were counting on the people who should know better to actually do something substantive about it. What they have realized is that the stimulus package instead is designed to soften the blow for the top 1% of the economy and let the other 99%, the ones buying all that crap from China and Malaysia and Singapore and Japan and Germany and wherever (i.e. all the countries whose markets just tanked today), go eat cake.
Which makes all the countries whose markets just tanked today very unhappy, because without Americans buying all their PS3s and Jettas and handbags and toys and saucepans and flat screen monitors and doodads and widgets and whatchamacallits, they have a real problem.
Even bigger than that problem is the problem with the global credit market. The wave of defaults are coming, and the people holding the increasingly worthless debt that won’t ever get repaid in a timely fashion are going to find themselves without a damn thing.
When America stops making payments on out IOUs, it’s all over. Today’s market plummet was the realization that America is going to renege on all this stuff.
Now there’s a chance I’m wrong. There’s a chance that America will come out of this by the end of the year and that we’ll turn this around.
But let’s keep in mind the massive flaw in that plan: the people who got us into this mess are the same people who have shown seven years of repeated incompetence, partisan bloodletting, unabashed greed and powermongering on an almost dictatorial scale. We’re betting on Bush and his crew to do the right thing. Even if there WAS something we could do about it at this point…the person who has to do is still George W. Bush. So far, betting on Bush to do the right thing has been a loser bet 100% of the time. We would need something bordering on an actual miracle here, and we have George W. Bush at the helm. Miracles don’t come with instruction manuals, and even if they did, he wouldn’t fucking read it, ya dig? We’re goners.
Today? Today was the rest of the world realizing that we are screwed, and that we’re taking them with us. The escape pods are being checked for supplies. The economy is officially able to have its consistency checked at this point not by the professional economist, but by the layman with nothing more than that tined eating utensil we ofter refer to in times such as these. When said layman does stick the fork in, the economy will really be done.
So yes, today was a Global economic no confidence vote. No confidence in Bush’s plan. No confidence in Bush. No confidence in Bush’s country. No confidence in a global confidence game, where fractional reserves of cash leveraged multiple orders of magnitude of credit. People now want their cash back. And multiple orders of magnitude of people aren’t going to get it. People are running for it. It’s not the fire that kills you in a crowded building. It’s the smoke and the stampede.
From here things just get worse in 2008, other than the 15-20% stock market “corrections” around the world. And it’s just freaking January. STILL.
If the 70’s were the “I’m getting mine” decade, the 80’s were the “I’m getting mine and going for yours” decade, the 90’s were the “I’ve got yours and I’m going for everyone else’s” decade, they’ll look back on this one and say it was the decade where we had ours and lost it all.
That sound you heard today is the Eurasian markets heading for the exits at the 8th inning while we still think there’s a chance we can pull this off being down 12 runs and the bottom of the lineup coming up.
Game over, folks. Thanks for coming.
.
Remember the Reagonomics and Black Monday in 1987?
I have expected this move on the stockmarkets for some months now.
"But I will not let myself be reduced to silence."Oh I remember alright.
And you know what? I’m totally waiting for the spin that everything’s fine because Black Monday was a 23% drop, and this was just 6 or 7 percentage points. Even if there was another 6 or 7 percent drop tomorrow, and an equal 14% drop in the US stock market…hey, it’s still less than Black Monday, and trading curbs will kick in, so everything’s fine, just fine.
Wednesday should be one of those “excellent days for bargain investments” because, of course, stocks always go up.
Except when they, you know, don’t go up.
The Nasdaq is down 25% in the last couple weeks. The stops on electronic trading put in place since 1987 have probably stopped us from crashing a couple times already.
Everyone holding our debt knows we are going to inflate our way out. The dollar is %40 weaker against the euro in the past two years. China has the yuan pegged to the dollar and are experiencing some serious inflation already. Gold is at $900 an ounce because nobody has faith in our economy or the dollar.
This is going to be bad. Hold on to your hats we have borrowed are way out of every recession so far. Always with the majority of the borrowing going to rich peoples tax cuts. It will end here. This is really going to hurt the people who were in no way resonsible.
Zandar1 thanks for this diary. Did you see Paulson doesn’t want any money to go to people who don’t pay taxes? “We are not decorating a Christmas tree.” he said. The same farked up BS coming from these greedy bastards. god forbid any stimulus would go to people who need it. This administration never passes up a chance to line their pockets.
Lucky the US markets are closed today. S&P Futures down at this writing 558 pts. Too, too hot for the PPT. Let’s see what their approach is tomorrow. Panic time.
The Bush stimulus package has been judged too little, even if he offered $5,000 per US taxpayer, according to some analysts that’s hardly enough to make a dent – like giving blood transfusion to a corpse.
These mountains of derivatives – FWMDs (financial weapons of mass destruction according to Warren Buffett) are in the trillions) amounting to $681 trillion as per BIS,
Bank of International Settlements Q3. 2007 stat.
The bond insurers downgrade on Friday was the trip wire for today’s sell-off. Wow.
Note to Zandar’s baseball analogy:
“Eurasian markets heading for the exits at the 8th inning while we still think there’s a chance we can pull this off being down 12 runs and the bottom of the lineup coming up.”
No friend, this will take time to unwind… we’re not yet at the 1st inning. We’re just completing the national anthem. There’s no practical solution to this mountain of debt.
But a debt will always be paid. Either by the borrower or the lender. Always And the U.S.A is the world’s largest debtor.
You’ve got a point on the baseball thing. It’s going to be a whole new ballgame, actually. One ballgame is certainly ending. It’s over.
The second game is about to begin. It’s going to be the game where people try to deal with an economy that since 2001 shouldn’t have existed.
Everything since 2001 has been a fairy tale. We’re about to end up right back where we were when the markets dropped back then, only we’re going to fall much further.
People took money out of their homes. It’s quite literally the only value Americans had. Now we can no longer do that. We have nothing of value left to pay for anything.
This is not going to be a recession. This is going to be a collapse. It is going to be a complete nightmare. Your standard of living is most likely going to be sharply reduced. When people finally do figure this out, they will take to the streets. They will want somebody to blame when the banks foreclose on their homes. They will want somebody to blame when unemployment goes from one in twenty to one in six or even one in five.
When the bottom falls out this time, there’s not going to be any way to recover from it. Not without scrapping the entire system. And it’s going to get scrapped in 2008.
The question is what system will replace it?
We’re about to find out. It will not be pretty. It will most likely involve a fair amount of violence. Stay tuned.
you’re not alone in your prognosis, however grim.
As you noted, the private ATMs are empty. HELOCs – Home Equity Line of Credit saw to that. But the fairy economics goes back to 1971 when Nixon closed the gold window.
The worst of the ugger may arrive in 12-18 months as they print and liquefy in an attempt to delay the inevitable GD 2.
What system will replace it? a trillion dollars for the answer… but near term more fiat currencies b/c there’s no practical solution in sight.
The poor have nothing to lose
The middle class, deep in debt, will be wiped out
The ultra rich, who saw this unfolding, protected themselves.
We’ll end up just like most 3rd world failed states….a society of the very rich and the wretched poor. Mugabe is waiting to welcome us to his club.
Was it Marx? “Capitalism has within the seeds for its own destruction”
The greed seedlings that grew into SIVs CDOs, MBS, et al.
The future’s so bright, I gotta wear shades.
It’s a race to see who’ll drop below 10k first, the Dow or the Nikkei. If this is the straw that breaks the global credit market camel’s back, it’ll be a race to the bottom.
We’ll probably have a winner before St. Patrick’s Day. Hell, we may have a winner before the end of this month.
monoliners (the bond insurers) are in dire so count on Emergency Action before the market opens: 100 bps and a big check book.
seriously, a money flood won’t help. The professionals are in panic as the Formula plays out. Confidence, once lost is difficult to restore.
Hope you hold no margin on anything. No debt.
Commercial real estate, autos and credit card debts same fate as sub-prime and near prime mortgages.