Economy: Worst is Yet to Come

What a week, what a week..

Well, if your an average American trying to follow the markets and thus, the economy.. what a terrible week!

The DOW officially ended well bellow the 12,000 mark. Most American's gauge the economy on the Stock index known as the DOW Index. some follow the S&P, which actually imo, represents the economy better then the DOW, but the DOW is most prevalent..

Of course, the Stock Index's do not exactly correlate what the economy is actually doing.. otherwise we wouldn't be in this mess, as just a year ago we where at 14,000 on the DOW .. everyone remember all that money you had a year ago? Me either.

But the economic woes we ARE feeling, us, me and you, the REAL consumer.. these should be over? Why are we still hearing economic concerns, problems with the banks, stocks falling, international tensions building..

I will tell you why.. things are NOT alright, they are no where near alright! The DOW falling is not the action that causes the economy to fall, but rather, the DOW dropping is just one reaction from a faltering economy.

Inflation is rising - fast .. which is hurting the economy, relatively severely..

Oil Prices - technically not included in inflation measurements (mumbles absurdities) The cost of increased Gas, increased FOOD, water, ENERGY, Health care .. and no pay increases .. the American population is spent.

Stimulus Checks - The economy is posting losses, the retail sector .. losses .. service .. losses .. just wait till the summer season ends.. massive losses in areas dependent on tourism ..

An economy crash is not a sudden affair. We note the "beginning" of an economic recession/depression when there is a sell off.. like in the 80's or 20's .. in reality the stock markets falling are only reactions to the real problems. Extended credit, cheap credit, low interest rates, inflation, lack of consumer confidence, poor government oversight, criminal banking activities .. THESE are the combined causes of the reactions that we see reported on the news.

For the week, the Dow fell 3.8%, the S&P 500 fell 3.1%, and the Nasdaq fell just under 2%.

3.8% in the US Market is worth more 0's then I care to type.

So what is going to happen? Everyone has an answer, always different so here is my take.

The economy will progressively get worse. Stimulus money or not, the billions wasted on it have been dispersed already and did nothing to help the economy (except walmart). Major corporations are already implementing and preparing contingency plans in the case of continued weakening consumer confidence. The Housing market will continue it's decline. People's equity will begin to vanish before their eyes, and as their equity vanishes, so does their perception of self worth/wealth and thus, further weakening of consumer confidence.

Banks will progressively get worse, as inflation tears through the wallets of sub prime mortgage holders, the ability to pay the debts will continue to pick up, and many billions will need to be written down.

Collapse/consolidation of banks - Big banks taking big hits will find themselves insolvent, and unable to pay the debts they owe. The fed may force/encourage a merging of banks, but in the worst case scenario, we could see a massive bank actually collapse. Bear Sterns was damn close. And the economic impact, would have been massive.

Cutting jobs. But even worse then cutting jobs, which has not accelerated to bad so far, NO NEW jobs are being created. We have seen a rise in unemployment, and Bush told people why, but people did not understand. No New Jobs. Graduates - I feel for you .. the job market is terrible for a new graduate, and many will be aimlessly wandering around job sites looking for an opportunity. More jobs will be cut, and once again, consumer confidence will suffer. Those loosing their jobs, once making 50-70k a year, will default on loans.

Credit - the NEXT big bubble to burst will be Credit Card Debts. Not only that, but the unfair, unethical and highly illegal system of "credit scores" will leave much of the nation with a credit score so low they cannot buy on debt alone, and while cash reserves are slim to none, consumer confidence will continue to drop.

But what could be the biggest single factor to jump start a recession .. is stupidity. We count on it from our politicians, that in a time we need them, they screw up. When things like this are spoken with regularity:

"There's a continuing erosion of the financial sector and I don't see it getting any better anytime soon," said Len Blum, managing director at Westwood Capital.

Politicians do dumb, idiotic things like .. regulating oil speculators..

To underline his case, Rep. Bart Stupak, D-Mich., said speculators now control 71% of oil on the market. That means only 29% control the physical oil being traded, down from 61% eight years ago.

CNN

Ironic that.. without oil and oil based products and other energy dependent sectors of the economy .. our GDP would already be showing a drop, and thus, a recession.

The stimulus package check thing was the stupidist idea the government ever had to help the economy, obviously it didn't work and just further shows that Bush is terribly inept at anything he tries to do.

I couldn't agree more. It is all a bit depressing when laid out in front of you to see like that. Better be stocking up on the canned goods and fire wood, this ride is just beginning.


And as I posted in another thread I will say again - the mortgage scene is going to get a LOT worse in the months to come. Banks and lenders are already bracing themselves. We are just now realizing the effects of the sub prime meltdown and what it means for the economy.

Late 08 - through 2009 you will see millions of designer loans start to reset. Pay option ARMS and interest only loans that were done to give the lowest monthly payment available will begin to adjust for the first time.

People who have been struggling to pay only the interest each month will suddenly have to pay the piper in full. It is being predicted by a lot of people I know in the industry to be the worst potential crash in history.

Imagine 20 million mortgage payments doubling in an already stagnant market, you are going to see default numbers shoot through the roof. Banks will fold off of foreclosure losses and forced buy backs, and not just small time lenders but big time players.

Imagine if you were to combine this perfect storm with record high credit card defaults...now throw in record high gas and food prices...not to mention a polarizing election and an impending invasion of Iran.

It is almost time to panic, folks.

Originally posted by BlackOps719

It is almost time to panic, folks.

Panic solves nothing.

I can't remember where I read the article; I think it might have been the NYT, or they were just quoting the NYT.

They said that there are only two types of stories about the economy: Apocalyptic or worse!

Just keep your head and plan for the future. Other than that, not too much else you can do.

I am usually the first person to attack you doom and gloomers.....Not this time. You have all made logical and realistic assessments.
It sure sucks to be a 41yr old, 3L, owing over $100,000 in student loans and who has already gone chapter 7 back in 2004 and owns nothing and has no assets, but needs to pay child support for 3 kids.
............the sun will come outtttt tooooomorrrowwwww, bet your bottom dollar that tooooomorrrow there'll be sunnnnnnnnnnnnnnnnn......
((((where are the Grey's when you need them....take me away!))))

Originally posted by 420prajna
The stimulus package check thing was the stupidist idea the government ever had to help the economy, obviously it didn't work and just further shows that Bush is terribly inept at anything he tries to do.

No..

It shows that Government is sadly inept at everything it does.



What people need to realize is that those who can no longer pay mortgages and are leaving.. still have thousands upon thousands of debt on credit cards. At some point, they will stop paying on those. They say missing a credit card payment or defaulting on one is the worst thing you can do to your credit.

Already there is a rise in re-possession on car loans, luxury vehicles, vacation properties and so on .. things the Middle Class are otherwise interested in... Miss one Credit Card payment, and carry it with you for 2 years.

Credit Scores are the closest thing to the Mark of the Beast that any man can imagine.

Well, if anyone doesn't want their stimulus check, I'll send a U2U and you can send it to me. I'm sure that I can put it to work!

Hey Rockpuck we knew better, many in this boards that had followed the downfall of the American economy and the crunch on the American's pocket has seen this coming and no end to it.

The only ones making it peachy in the Markets are the speculators.

But then again we have people in government that are reaping and cashing out on the great American give away.

That is why you don't see anything been done, either that of our own government have their hands tie behind their back thanks to the influences of private agendas.

When we have a body of government that is ruled by private interest they do not have time to work for the people anymore.

But something is for sure, the big CEOs will not lose a penny of their outrageous salaries as long as they can dispose of the American workers.

[edit on 20-6-2008 by marg6043]

I disagree with you on a particular point. You said the value of our property is falling.

I invite you to take a closer look.

The dollar is suffering from infaltion, you can buy much less with one. Yes your home is worth less, and decreasing in dollar value. But it is still the same home.

When that same dollar which could buy a loaf of bread, can only buy one slice, how does that compare to your home, which is still a complete home, not somehow reduced to single bedroom or a toilet.

When you pay it off in deflated dollars, what loss do you see that it sells for less dollars than when you made your deal? And those newer valued dollars still buy an equivalent valued home.

Truly you could buy twice the home for half the originally valued money at some future date. But who will have the originally valued money to do so?
That was then money will not have the same value.

Take a hard look, and you will see that it is only the illusion of relative values which is shifting. Real things are the best of all possible investment in these times. A bottle of whiskey will remain a bottle of whiskey. A bond or euro may be become worthless or change value daily.

The values may change relative to scarcity, but that is a different matter entirely. That is the matter you should be concerned with.

[edit on 20-6-2008 by Cyberbian]

I'm glad someone brought attention to recent DOW drop below 12K. I'm not much of an economist but I know the basics. One thing I particularly find odd is how the economists are not being more optimistic to the economic decline, usually it's more of "oh it's a minor recession but it will get better soon" type thing or thats what I was taught in school. However they just seem to be sounding like doomsdayers the more it drops. My theory as to why we haven't seen the total impact of rising prices is because corporations still have that extra spending money from when prices were low it's just a matter of time before that pocketbook will get tighter and other prices will go through the roof. I've already seen it hit my work, we raised prices not so long ago. I haven't seen it hit large franchises like McDonald's yet, but when that dollar menu becomes the two dollar menu thats when I'll start panicking

reply to post by Rockpuck


Do you think this will have much of an effect on anything?
Iran Withdraws $75 Billion from European Banks

Thanks for cheering me up Rock! I knew things were bad, but now I also know the reasons why.

Seriously, good post. I just hope people will take heed, and begin planning appropriately for the crash. There's still time..

Well it wont be good... I don't blame that action on the markets dropping, but technically since the withdraw the DOW has gone from 12,400 to 11,800. But again, I don't think that it is directly related to the dow dropping. Cash reserves taken from banks that cause the bank balance to drop into red numbers will be made up in over night loans, if needed, of course banks running out of capital to begin with is helping cause the problems we have.

The most ominous sign is that the west is certainly gearing towards war..