Global shares tumble [Archive]

Issachar

January 21st, 2008, 10:28 AM

Asian, European Markets Plunge on Pessimism Over US Stimulus Plan; Nikkei Sheds 3.9 Percent (http://biz.yahoo.com/ap/080121/world_markets.html)

I was expecting Asian markets to drop by perhaps 2-3 percent overnight, but I didn't expect almost double that.

I imagine there are some very frantic meetings, connected via video-phone, going on this day with government and central bank officials. In the past several years whenever the markets took a big hit on any day, it usually came back up about as much in the next day or two. What has been happening since the middle of last August and especially all of this January, is starting to be rather alarming.

At least 70% of the US economy is driven by consumer spending. In the past decade or more, most of that spending has been debt driven. Folks were getting maxed on credit cards and have been turning to refinancing their houses and taking cash out to spend. Borrowing against house equity in past decades has mostly been for things that would give a return; i.e. adding on to the house a room which would increase the value of the house or starting a small business or for more education which theoretically would lead to a higher paying job, etc. But in more recent years, a large part of borrowing against house equity has been for financing a vehicle which always loses value, or paying for vacations which generate no return, or buying "toys" such as large screen tee vee's, etc. Basically for expenditures rather than an investment. That is what has kept this silly fiat economy going along. Well, not that it is becoming harder for folks to get those house equity loans, the source for consumer spending, the engine of fiat economies, is drying up.

For a long time I've though it strange that in a (now so called) free enterprise system, one can go through 13 years of mandatory education and come out the other end of it and be so clueless as to how economy works. Now a days a lot of people think is a big deal if they can balance a check book. Imho, this is all by design.

Issachar