Why Lessons From The First Great Depression Mean The Next Four Months Will Be Very Painful For Stockholders

Scott Minerd, CIO of Guggenheim Partners, parses through the years of the Great Depression, and focuses on the pivotal 1936, which contained in it the seeds for the destruction of the period of relative economic growth and stability from 1932 to 1936, and resulted in a plunge in the economy in the second great recession of the Depressionary period: that of 1937 and 1938. While the first period saw "GNP grow at an annualized rate of 10 percent, the Dow rose approximately 20 percent per annum, and unemployment declined from as high as 25 percent in 1933 to as low as 11 percent in 1937" the second and much more dire phase of 1937-1938 . saw a unprecedented plunge in economic data: "national output declined by 5.4 percent, unemployment skyrocketed from 11 percent back to 20 percent, the Dow Jones Industrial Average declined 49 percent, and four years of healthy price recovery receded into 3 percent annual deflation." What precipitated the second collapse? "The short answer is that it was a confluence of factors, a perfect storm of monetary and fiscal policy mistakes" yet the immediate catalyst, if one can be defined was "the fiscal policy missteps of the Roosevelt Administration, who, in an effort to balance the budget after six years of deficits, implemented a series of tax increases in 1936 and 1937 that caused output, prices, and income to fall and sent unemployment skyrocketing." We are currently faced with precisely the same juncture, and unfortunately for America, things now have a far lower probability of occurring "just as they should" in order for the country to emerge in one piece on the other side of the tunnel. Here is why.

First a question - what caused Rooselvelt to flip out and commence on a series of disastrous economic policies? Minerd explains:

In response to such Republican criticism of his fiscal policies, Roosevelt fired back by issuing the following points in the Democratic Party platform of 1936 (my paraphrase, followed by direct excerpts originally published June 23, 1936):

1. Deficit spending was a result of the crisis inherited from the previous Administration: “We hold this truth to be self-evident – that 12 years of Republican leadership left our Nation sorely stricken in body, mind, and spirit; and that three years of Democratic leadership have put it back on the road to restored health and prosperity.”

2. The Democratic Party restored confidence in America, thus the cost of deficit borrowing had declined to extremely low levels: “We have raised the public credit to a position of unsurpassed security. The interest rate on government bonds has been reduced to the lowest level in 28 years.”

3. The Democratic Party would still balance the budget through the austerity of limited growth in government and by higher taxes: “We are determined to reduce the expenses of government...Our retrenchment, tax, and recovery programs thus reflect our firm determination to achieve a balanced budget and the reduction of the national debt at the earliest possible moment.”

Does any of this seem familiar? It shoud, as should the fact that in his several years in office the budget deficit had soared, and the attempt to balance it resulted first and foremost in an explosion in unemployment, as the chart below demonstrates:

What specifically went wrong to cause the 1937-1938 episode?

Someone once asked me what Roosevelt did that was so bad leading up to the recession of 1937-38. The answer I give is simple: “He attempted to balance the budget at the wrong time.” More specifically, he attempted to balance thebudget by increasing tax revenues at a time when the economy was still finding its footing and the Federal Reserve was attempting to reverse policy. Even after the four years of recovery following the Great Depression, when Roosevelt began his series of tax increases unemployment remained over 12 percent, which on its own would be considered the worst labor market in modern U.S. economic history.

If the Roosevelt Administration’s driving purpose was to prove to the world that it could balance the budget, it was successful. In 1937, the budget deficit declined by 1.9 percentage points in relation to GNP. In 1938, that trend continued with the deficit declining another 1.4 percentage points in relation to GNP. By December of 1938 the Roosevelt Administration had essentially achieved its goal of a balanced budget.

But what was the cost of such actions? According to data from BCA Research, the unemployment rate went from 11.2 percent in May of 1937 to 20.0 percent just 14 months later. Data from the Federal Reserve Bank of Minneapolis shows the overall economy contracted 5.4 percent in 1938. The Dow Jones Industrial Average fell 49 percent from March 1937 to March 1938. Two years later, in March of 1939, the equity market remained depressed, still 30 percent below its March 1937 levels. The U.S. economy, which had whipped unemployment down from 25 percent in 1933 to 11 percent in 1937, limped into the 1940s with unemployment hovering just over 15 percent. The silver lining of all this economic carnage? For one month in 1938 the budget deficit was reduced to just $89 billion dollars – nearly, but not quite balanced.

So have we learned anything from the past? And even if we have, will the imminent expiration of the tax cuts be the equivalent of the tax hike the rapidly plunged America into the biggest economic deterioration at the tail end of the Great Depression? Alas, the answer is probably yes.But not before the Fed embarks on a proper QE strategy, one that has the potential to not only spike asset prices as the Primary Dealers bid up everything that is not nailed down, but this would happen in a time of surging unemployment. With the true unemployment rate already in the 20% ballpark as calculated by objective, non-governmental estimates, will the outcome of the tax changes of 2011 result in the biggest economic catastrophe in US history? We should look back in time for the answer...

It’s evident from Chairman Ben Bernanke’s speech in Jackson Hole last week that the Fed stands ready to continue to provide quantitative easing if necessary. I believe it will be necessary since the economic data in the next few months is likely to be pretty ugly and the rhetoric out of Washington is likely to devolve into a nightly news highlight reel of partisan feuding.

Yet despite the Fed’s commitments, some of the same issues that occurred in 1937 loom on the horizon today. For instance, in the first quarter of 2011 the United States faces massive tax increases. Similar to the mid-1930s, many have argued that deficits must be tamed now and that the economy is healthy enough to sustain austerity measures. Under such political pressure, it appears unlikely that even a portion of the Bush tax cuts will be extended.

There are a host of economic forecasts about the potential size of the fiscal drag that would result from a full expiration of the Bush tax cuts. Macroeconomic Advisers, for instance, believes it will subtract 0.9 percentage points off GDP. ISI Consulting thinks it could be even larger, around 1.2 percentage points. Arthur Laffer, the famed supply-side economist, prefers a number significantly larger, predicting as much as 6 percentage points of fiscal drag. Any way you slice it, if estimates for economic growth in 2011 range from 2 to 3 percent, these tax increases could result in flat to anemic growth and elevate the risk of recession due to the slightest bit of economic turbulence.

In addition to the expiration of the Bush tax cuts, there is the additional cost of healthcare reform. While some would argue that healthcare reform is just a transfer payment program, the fact remains that there will be no incremental healthcare benefits available in the next three years. Therefore, the transfer payments, which are intended to be revenue neutral over the next 10 years, actually create a fiscal drag between 2011 and 2013 before becoming modestly stimulative when the benefits become available from 2014 to 2020.

So what does this imminent change to tax expectations mean for investors in practical terms? Very bad things, especially for those who anticipate a run up in stocks into the mid-term elections: "One clear consequence of the repeal of the Bush tax cuts will be an urgency to accelerate taxable income into 2010. This will have a number of impacts on the market, the most direct being a desire to liquidate positions in equities and other financial assets to realize capital gains before the New Year. This will continue to put downward pressure on equities and increase volatility."

That's right: equity liquidations, meaning the long expected second major leg down in stocks is at most 4 months away.

There's more:

Last week, Bernanke also referenced the importance of a “baton pass” from the economic boosts of government spending and inventory replenishing to the more sustainable support of consumer spending. If equity prices decline in conjunction with the renewed pressure on the housing market as tax incentives are removed, the net effect is likely to be an adverse impact to already fragile consumer sentiment and spending. In essence, the economy is in danger of a fumbled baton pass from 2010 to 2011.

In the face of this uncertainty, and in light of the Jackson Hole remarks, it appears Chairman Bernanke and the FOMC will find it necessary to increase their holdings in long-term securities and increase the size of their balance sheet. This will ultimately lead to lower interest rates and a need to maintain low long-term rates for several years in a hope to prop up the housing market by maintaining record low mortgage rates (see my recent commentary on “The Story in Housing”). What remains to be seen is how severe the economic headwinds will be as a result of the fiscal tightening going into 2011, and how dramatically the Fed will move once it reaches the decision to continue to grow its balance sheet.

In the short run, given the amount of purchases that the Fed will have to make, quantitative easing will most likely swamp the amount of incremental borrowing required by the government, which means that financing the deficit won’t be a problem. Ultimately, however, the U.S. economy will come to the end of the road and inflation concerns will reemerge.

Once the market collapse has transpired, then, and only then, once we enter the proverbial revulsion stage in equities, will the stage be set for an actual bull market:

I believe further quantitative easing is likely to take place in the near term. I also believe there is a strong probability that there will be some form of additional fiscal stimulus passed by the government as it yields to mounting pressure to address the nation’s historically high unemployment rate. After these two events take place, the stage should be set for the green shoots of recovery to reappear in 2011. Once these harbingers of economic health appear, the Fed will come under pressure to convince the market that it has a sound exit strategy to unwind its massive balance sheet. Simultaneously, pressure will reemerge for fiscal austerity and deficit reduction.

As we approach the presidential election of 2012, monetary and fiscal policymakers will be faced with their greatest challenge: whether to reverse the emergency policies applied up to that point, and if so, at what pace and timing to conduct such measures. The risks surrounding these decisions are even greater than the risks that surround the near-term policy decisions about further fiscal stimulus and quantitative easing – taking away support is always more difficult than giving it. The dangers will be strikingly similar to the risks that faced the economy in 1936. Remember, it was Roosevelt’s dash to fiscal discipline in 1936 – combined with the Fed’s misguided decision to tighten monetary policy by doubling the required reserve ratio for banks – that resulted in the severe fiscal drag on aggregate demand and economic output that pulled the economy back into a deep recession.

While I remain optimistic that the current economic “soft patch” will not unravel into a full-blown recession, my concern increases when I look ahead to the challenges the economy will face once it regains its footing. The parallels to 1936 grow increasingly striking the closer one looks to 2012, especially if the green shoots of economic recovery take hold between now and then, which I believe they will thanks to additional policy actions later this year and in early 2011. Oddly enough, the foundation for the recession of 1937-1938 was laid in the election year of 1936. The question remains, will the presidential election of 2012 lay the foundation for a parallel series of events? Given the unprecedented monetary and fiscal policies enacted in recent months, as well as those that are likely to be enacted in the near term, the opportunities for future errors of policy judgment loom large. In light of this, whether it’s in relation to 2010 or 2012, the lessons of 1936 are stark and disturbing.

And while America in 1938 and onward was a different country, whose manufacturing industry and thus real economic output potential, was only starting to stretch its wings, further having the rather tragic benefit of World War II as an unprecedented attractor for record economic activity, the current outlook is far more bleak. The US consumer is on average far older, the pension system is on the verge of bankruptcy, the US' chief export (at least on a relative basis) is services, and the spectre of a war at this juncture would have far more dire ramifications: a small regional conflict that avoids the participation of the superpowers may have a marginal boost to the economy, but likely nowhere near enough. A full blown collapse into another world war leads to consequences too dire to even imagine. Which is why we agree with Minerd, that while the intermediate steps that occurred in the immediately preceding 1937 period are all in line, and which the government will only have itself to blame if it screws up on the transition to a smooth glide slope, the events on the other end of the tunnel look far bleaker.

Full must read paper from Guggenheim.

Comments

[sschu]

The Fed despite all its intentions to boost the profits of its member/owner banks will ultimately seek to preserve the value of its one true asset - dollars/federal reserve notes. Not to do so would be political suicide for the Fed.

Thanks for these thoughts, they are very possibly accurate IMHO.  This is the main problem I have with those who say the Fed will inflate to infinity, the idea that the Fed is willing to destroy itself in an effort to revive inflation.  It makes little sense for them to do this.

The argument is political, the Congress and Executive want the Fed to gun the economy by printing $$, in other words take the political heat for the $$ devaluation.  The Fed is right now not that eager to do this, for good reason.  If the economic and political interests stalemate, then deflation with all the fixings is the result.

I also do not believe the Fed could stuff the inflation genie back in the bottle once it is out, much as they would like to think they can.

sschu

[scratch_and_sniff]

Can anyone bring me up to speed on the zerohedge policy of deleting articles? The thing is, i want to keep a few for further reading...when are they deleted? Would i be better off just saving them offline, or would it be ok to just stick them in a favorites folder and come back at my leisure?

[Johnny Bravo]

They keep them up pretty much indefinitely, I think.

You can just save them to your favorites and come back to them.

[nudedude]

yada yada yada, just like the flash crash you called for a few weeks ago, how'd that work out.

[mt paul]

silver just hit new 2 year high 

19.67 $ per oz

polish them bars players..

[TruthHunter]

The article implies that the down turn was caused

by the hike in tax rates.  This ignores the changes

in labor laws at that time.  Economic growth would

no doubt have been slowed, but the strikes and labor

strong-arming enabled by FDR contributed even more.

Pandering to his discontented labor  base was  nearly

fatal to the economy.

It wasn't until 1964 that marginal tax rates fell below 90%.

We enjoyed 20 years of growth in spite of the high rates.

The Bush tax cuts didn't produce a healthy economy. 

You simply can't give psychopaths a free "Pass Go" card.

Rates as low as the Bush ones should never again be given

to any but the best economic citizens

[dan10400]

+1.  Bring back the upper tax brackets.  I am tired of being anti-tax-hike fodder for some schmuck with a silver spoon in his mouth pulling down > $10M year.

[Rogerwilco]

So you'll be happier when the "rich schmuck" lays your sorry ass off to make up for his higher taxes?

[DosZap]

Roger,

They do not get it...........this is exactly why no one is investing.

They have no clue where, what, if, when or how they will be able to stay in business.

Small business owners are simply sitting on what they have, and no one is telling them how they will be affected.(and they are the JOB producers).

So, we have near Zero growth.They need people, they need help, no hope for this economy until folks go back to work.......period.

Even then I think it's too late due to our debt,but at least it would give some a check, and hope, and a boost.

[New_Meat]

Dos, you are spot on.  My brother runs a small business, funding through a family trust that has other obligations (pensions, but they won't walk away from them).  He's sitting on a bubble on whether the owners pull the plug.

And if people are back at work (esp. those who have fallen off the far end of conveyor belt No. U-6), well, that is net positive.  Maybe they will pick up some skill that will help in the future.

But yes, get back to PRODUCTIVE work.  Even here in MA, the revolt is continuing after Scott Brown's win.  Governor just said something like "it is unfortunate that we live in a free country."  Deval is O-prototype and test run (Plouffe and Axelrod beta tested the hopey-changey thing on us).

- Ned

[Treeplanter]

In theory, the very very rich pay a huge percentage of taxes already.  NYC would be toast if half the rich moved out.  On the other hand there is a stack of loop holes and credits in the tax code to give the rich and corporations an escape hatch.  So I don't know what the truth is.  I figure we're being lied to from both directions.  I favor zero exemptions, credits, etc. and rates lowered for everybody.  James Madison favored impartial taxation.  I think he had good reason.

[chunkylover42]

We had 20+ years of growth following WWII because most of the manufacturing infrastructure in the world at that time was destroyed during the war, AND we had years worth of pent-up demand from the depression and 10 million+ troops stationed overseas coming home.

[RobotTrader]

Meanwhile, Depression forecasts are being ignored.

Too much money to be made.

Wall St. has the 2009 playbook out and they are repeating the "Dash for Trash" trade.

They are buying furniture companies today.

[spartan117]

Hey Robo,

Can you put up a chart of TRE - Jim Sinclair's company?

Thanks in advance.

[RobotTrader]

Big day for General Jim....

[ATG]

Caveat emptor:

TRE a lagging component of PIZ:

http://stockcharts.com/charts/gallery.html?s=piz

JE Sinclair just put $C 800,000 into his company at the high price target for the year:

http://stockcharts.com/charts/gallery.html?tre

There are 1122 shareholders with no earnings.

Maybe he found some gold in Tanzania?

Even so, gold targeting lower to at least $1050:

http://stockcharts.com/charts/gallery.html?s=%24gold

DZZ near all-time lows may make more dollars and sense here:

http://stockcharts.com/charts/gallery.html?s=DZZ

[rosiescenario]

"They are buying furniture companies today."

...in preparation for rearranging the deck chairs on the Titanic....you need working materials.

[grunion]

ok

[Dr. Sandi]

deleted by court order

[-1Delta]

... not oil services... ouch

[Johnny Bravo]

Depression forecasts are being ignored because they only are made by conspiracy theorists who don't know their ass from their belly button.

This IS the double dip. 

[Hard1]

Someone once asked me what Roosevelt did that was so bad leading up to the recession of 1937-38. The answer I give is simple: “He attempted to balance the budget at the wrong time.” More specifically, he attempted to balance thebudget by increasing tax revenues at a time when the economy was still finding its footing.

20 YEARS LATER...

Someone once asked me what Obama did that was so bad leading up to the recession of 2008-201X.  The answer is simple.  It wasn't Obama.  "Bush didn't balance the budget at the right time" More specifically, he didn't attempt to balance the budget by reducing spending at a time when the economy was running at full steam.

[bigkahuna]

It was both of them.

[weinerdog43]

Before this turns into a partisan flame war, this is bipartisan bungling of the highest order.  We've been kicking the can ever since the Reagan era and before.  You have gutless (the Dems) or corporate whore (the Reps) and neither has the guts to say 'enough' to look after the Republic. 

I'm with Jim Willie http://www.24hgold.com/english/news-gold-silver-gold--investment-in-fail...

Until the big banks die, there will be no resolution.

[centerline]

Both parties captured by corporate interests. Playing the dem vs repub game does nothing.

[Treeplanter]

Read that, Wdog.  My sentiments exactly.  And well presented.  Jim Rogers said this started with bailouts.  NYC was the earliest bailout I remember.  Bankruptcy might have taught them a valuable lesson.  How did we survive without TWA, Pan American, Studebaker and American Motors?  Good tip.  I saved that article.

[Spalding_Smailes]

When was the economy really running "full steam"?

After the dotcom bust(1995-2000) Greenspan started fighting deflation with free money which brought on the housing bubble.

And Billy Clinton who had Rubin on his economic team, the bum who spearheaded the banking deregulation that allowed the credit orgy to kick into high gear....

And now your Boy' Obama is putting them all to shame with his budget, no ...

...."

Rubin sparked controversy in 2001 when he contacted an acquaintance at the Treasury Department and asked if the department could convince bond-rating agencies not to downgrade the corporate debt of Enron, a debtor of Citigroup.^[24] The Treasury official refused. A subsequent congressional staff investigation cleared Rubin of any wrongdoing, but he was still harshly criticized. Rubin wanted Enron creditors to lend money to the troubled company for a restructuring of its debt.

Some critics claim the repeal of the Glass-Steagall Act was a key factor in the 2008 financial crisis. Enacted just after the 1930s great depression, the Glass-Steagall Act separated commercial and investment banking. That law was eventually abolished in 1999 under President Bill Clinton, while Rubin was financial secretary.

[Rogerwilco]

And lest we forget, it was Clinton who allowed Rubin and Greenspan to cut that deal with China which opened the floodgates and hollowed out our industrial base. It gave us 15 years of trade deficits and five minutes of a "balanced" budget in FY '01.

[Spalding_Smailes]

Robert Edward Rubin (born August 29, 1938) served as the 70th United States Secretary of the Treasury during both the first and second Clinton administrations. Before his government service, he spent 26 years at Goldman Sachs eventually serving as a member of the Board, and Co-Chairman from 1990-1992.

[ATTILA THE WIMP]

Robert Rubin is a Bilderberger

http://rt.com/Politics/2010-08-19/castro-lashes-bilderberg-group.html?fullstory

[centerline]

If what I am to understand is correct, the budget was only balanced then by robbing from the social security coffers. LOL. The cookie jar got jacked - over and over and over. Now, nothing is left and the lid is f***ing missing.

[New_Meat]

Don'tcha know.

[CONners]

"One clear consequence of the repeal of the Bush tax cuts will be an urgency to accelerate taxable income into 2010."

For someone unemployed, who participated in a Reduction in Force (RIF) by lay-off, a sell-off in the stock market due to taxing the rich delights me.

[Ripped Chunk]

Aye Aye Mate!  Wall Street already considering paying out 2010 bonuses before December 31.

Isn't that special !!!!!!!  Fuckers !!!!!!

[CONners]

After the elections, we will have some new people in office who will fix everything, right?

When the government pays out unemployment benefits to prevent starvation, the rich suffer.  No worries here mate.

[puckles]

To rely entirely on the rich to fund anything is a fool's game.  There simply aren't enough of them, even at confiscatory rates.  They also have the means to remove wealth to untaxable positions, should the occasion arise.

I know that everyone on Zero Hedge keeps whining, justifiably, about the destruction of the middle class, but they still outnumber all others, and as such are always those most targeted by any taxation scheme.  WE ARE THE CASH COWS, and don't let anybody tell you otherwise.  Just watch what happens next year...I promise, you will be amazed.

[New_Meat]

Art Laffer has been through this. 

"... a sell-off in the stock market due to taxing the rich delights me."

Have a delightful life, dude.

- Ned

[Silversinner]

Think the problem started in 1913.Country's lending their own money from private entity's

at intrest witch can be created out of nothing is a corupt system.What we need is honest money

and a free market to get out of this mess.Stop paperponziwarfarespendingsceme could also help.

[Treeplanter]

Exactly right.

[dan22]

Marching Towards a Yo-Yo Depression

[Ripped Chunk]

Nonsense!  Ben is pulling the lever on the printing press as we speak. GAME ON ROBOTS !!!!

[robertocarlos]

This is just rich people bitching about a tax increase. Do you intend on paying your debts or not?

[grunion]

I'm rich? 

[Dr. Sandi]

Do you intend on paying your debts or not?

Hell no, why should I be the only one?

[plocequ1]

Wow, That's deep. Very poetic. Makes me want to...Buy Goog and Apple

[michael.suede]

You people on this site understand markets so damn good, better than any group of people I've come across.

However, I see a lot of people in here still stuck in the quagmire of Keynesian economic fallacies when it comes to long term market predictions.

Rothbard's work, America's Great Depression, is the seminal historical Austrian perspective on the real causes of depression.

You can read the entire work here, free of charge:

http://www.hacer.org/pdf/Roth4.pdf

Reading it will root out those logical fallacies still stuck in your head.  To sum the book up in one sentence:  Any time government intervenes in the markets, either through regulation, spending, or manipulation of the monetary system, bad things happen.

[centerline]

Some maybe. Some others just bash Keynes for the sport of it now (it's fun, try it)... knowing fully that even Keynes would be shitting a gold brick right now over what is happening. It's definately all out of context and into all new waters.

Thanks for the link. Looking forward to reading it.

Speaking of markets, it really has become "a sport" as well. My tinfoil hat if off to anyone who trades this thing for a living.

[michael.suede]

It's pretty easy to bash a guy that thinks "animal spirits" are responsible for business cycles.

Keynes was an idiot and anyone that believes his crackpottery is an even bigger idiot.

[Rogerwilco]

@michael

Keynes was definitely not an idiot. His name gets thrown around a lot these days, but few understand that his economic prescription is not being followed very well. Yes, he proposed using government spending to pump demand in times of economic stress, but he also recommended the government bank its surplus during the good times so as not to accumulate large deficits. He believed in zero inflation, but allowed that it might be useful for the government to permit limited monetary inflation (1%-3%) so the "little people" might feel a sense of progress as their wages increased over time.

[michael.suede]

That's not what neoclassical theory teaches.

Yet still, if we take Keynes at his own assumptions, and leave out current neoclassical theory, we can still demonstrate that Keynes, was in fact, an idiot.

Rothbard pretty much blasts him a new asshole by demonstrating Keynes business cycle theory is not integrated with his general theory.

That, and his business cycle theory is so retarded that monkeys pulling on random levers has been proven to be more predictive.

[tmosley]

The markets do that naturally.  Having governments do it only introduces additional complexity, which reduces efficiency.  Was Keynes so stupid as to think that people couldn't save on their own?  There was a massive trend towards financing capital projects out of profits rather than with loans leading up to 1913, which the bankers didn't much like.  Had that trend continued, you would have seen a true end to depressions, which are nothing more than mass deleveraging brought on by too much debt.

[New_Meat]

bash Keynes?  So easy that even a caveman can do it.  But my old favorite comes to mind:

http://www.youtube.com/watch?v=d0nERTFo-Sk

- Ned

[Blano]

Dang, I've bookmarked nearly 2,000 pages of reading from this post tonight....when am I gonna find the time??

[Johnny Bravo]

You can exclude any reading from fofoa or other conspiracy theorists right off the bat.  It's all bullshit anyway.

[chrisina]

And after reading Rothbard you should read Kozul-Wright's "The resistible rise of market fundamentalism". Then maybe you'd understand that all of Rothbard's work rests on a mixture of implicit and hidden non empirically verified assumptions, myths about the history of various countries' economic development, and special interests camouflaged in his rhetoric of general good.

When you start with a series of axioms of which the ethical touchstone is CONSENT, it's perfectly logical that you come to the conclusion that free markets are always more efficient unhindered by any sort of government intervention. But questioning those axioms is something market fundamentalists will never do, for they are as good as dogma. The hidden assumptions contained in those axioms are logically equivallent to the conclusions reached, Rothbard's work is just another beautiful example of circular logic disguised as fundamental qualitative economic laws which libertarians and other anti-social types love to drink like koolaid as they comfort their layman's opinions which they view as common sense. 

But I guess reading a rational critique of free market thinking is something free market ideologues will never entertain as they are generally only interested in comforting their own biases.

Anyway, I am probably just pissing in a violin as the dominant libertarian/Austrian/Free market fundamentalist/Anti social Government bashing contingent will simply junk me and will assume that I haven't read, or understood their heroes Rothbard and Mises. This only serves to render any sort of rational discussion between them and what they will call a statist perfectly impossible.

[Bertie Bear]

There is no "good" way out of this, only bad, worse or catastophic. The problem is no-one, including the global policy makers - actually, especially the policy-makers - knows which road to take. But whichever it is there is lots of pain to come to pay for Alan Greenspan's negligence. Asleep at the wheel? He was lying horizonal in teh back seat!

[unionbroker]

exactly 2200 on the Nasdaque on the close now these guys are just showing off

[Village Idiot]

CNBC Interview just minutes ago -

"So, we had a strong rally, yesterday.  And today's market action would seem to validate the rally."

"mmm, yes."

Good luck out there - big day tomorrow.

[StychoKiller]

Those "green shoots" everyone yaps about look more like targetting lasers painting spots on the backs of average tax payers!

[Panafrican Funk...]

What this article fails to point out is that we're actually in for a double whammy in which taxes are increased (due to political gridlock; expiration of tax abatements, and taxes raised through non-congressional means such as regulatory fees), and spending is decreased (again due to political gridlock once either the House or the Senate switches majority control, spending bills are going to be hellacious to get passed). 

I don't mind the spending decrease, but I have no illusions that it won't hasten the "correction". 

With that in mind, I think the Dow will remain above 10K until late January/early February.  Post Super Bowl, I think shit is going to start getting pretty ugly. 

[packman]

Key point to not be forgotten:

WWII did not exit us from the Great Depression (contrary to an oft-held belief).

Winning WWII did.

[ATG]

WWII was over in 1945.

We did not catch up to 1929 Dow until 1954 in nominal terms, and 1965 in real terms:

http://stockcharts.com/charts/historical/djia1900.html

[Treeplanter]

In the 50's American farmers (90% of my family in those days) got great prices and upgraded their equipment and living standards.  Then the bankers began really encouraging them to borrow a lot more than they needed to make a crop.   That didn't work out so good. 

[New_Meat]

in the '30's the progressives in WI and MN were dumping milk because of price control.  People in other parts of the country were starving.  But good ol' FDR admin had, well, administrators who knew better.  So New Deal policies a) broke markets and b) starved people.  Sounds so "today."

Banksters-everywhere/everywhen.

- Ned

[Treeplanter]

In the 50's American farmers (90% of my family in those days) got great prices and upgraded their equipment and living standards.  Then the bankers began really encouraging them to borrow a lot more than they needed to make a crop.   That didn't work out so good. 

[New_Meat]

anti-incumbent meme in 1946: "had enough." - Ned

[Something Wicke...]

I simply can't time the collapse. But I can hinge it to an event.

Imagine a world where you have squandered and plundered all of your wealth. Wealth that your greed says you are entitled to. So instead of prudently reserving wealth for unforseen events, you simply languish debt ridden like the grasshopper thinking that life will be happy joyous, and free. You are fat and greedy. Despised. Leaner and motivated predators await.

You have screwed everyone in the world consuming their wealth and resources. You lie to them and tell them everything is just rosy. You are isolated and alone. And the world realizes they can live without your fat ass.

And maybe its a dinnerjacket, or a Nork, or a desperate bunch of Israeli's, or maybe 2 billion pissed off easterners. Maybe it's a world class calamity, a meteor strike, a wave of hurricanes, or a super volcano...but make no mistake about it...You are debt ridden and absolutely ripe thus this event becomes the coup de gras. You are not prepared for it, and in fact so unconscious...that when the calamity comes you have no means to deal with it. And even if you do deal with it, you are so damaged and weak, that you will not survive.

[gloomboomdoom]

it doesn't matter. people believe the BS. THAT IS ALL THAT MATTERS.

Yeah, the money in your pocket is worthless. Backed up by..... the military (FULL FAITH AND CREDIT)?

So we have a controlled society. One that the BIG BOYS control. Everyone has an Iphone because that is what the big box in the living room says you MUST do.

So, this system can go on forever because the people of this nation believe the 100 note in your pocket somehow is more valuable than the 1 note.

If a mass realization of this occured in the US, a TOTAL COLLAPSE would come instantly.

Perception is reality, in the Empire of Lies.

You think the attack on Glenn Beck (Gold) wasn't a plant? Yeah, goldline is a rip but of all things to attack Glenn Beck on, GOLD? come on now. ALl other talk show hosts advertise it along with CNBS.

Perhaps because of Ron Paul and Beck. A lot of people are starting to wake up.

"loss of faith" would discredit the dollar, right? since of course that is what is written on the wonderful paper we call our currency... FULL FAITH and CREDIT

"FULL". Is it still full?????????

[StychoKiller]

Full of smelly fertilizer, so yeah.

[tom]

This guy isn't writing in his role as CIO, he's writing in his role as hyper-partisan Republican still pained by the vague popular memory that Roosevelt somehow fixed the Great Depression. Get over it.

So now the argument is that Roosevelt was wrong to try to close the deficit in 1936-1937. It was bad timing. And this is a lesson for us now? Is he arguing this because he really believes we need to worry about the threat of poorly timed austerity, or because he can't resist one more chance to accuse Roosevelt of having done something wrong? Jesus H. Christ, get over it already.

Poorly timed austerity is not a threat. There will never be any better time for austerity than the present. The longer we put it off, the more it will hurt, especially if we wait until it's forced on us by fiscal crisis.

[grunion]

And you are playing the role of hyper-partisan Democrat?

[AnonymousMonetarist]

1937?

Silly randomwalkers...

We haven't had our 1932 yet...

[New_Meat]

Yep, that has been my view.  I have a DOW chart on my wall, with a tape arrow pointing to the peak of the first big recoil.

We'll see.  I'll bring the popcorn.

- Ned

[Mako]

No lessons were learned from the period known as The Great Depression, just like there was no lessons learned from any of the prior Great Depressions.

Before the Great Depression of 1930, was the Great Depression of 1872 sometimes referred to as the Long Depression, before that depression was the Great Depression of 1807, etc. etc.

This one will be the worse or best one yet based on your point of view. 

Using the equation is fun until it breaks down.  Fireworks will be grand this time.

[puckles]

Prechter thinks it will rival or outdo the collapse of the 1700s, based on the wave patterns he's projected.  I sincerely hope he's wrong, but am preparing for him to be correct.

[walküre]

I'm developing more and more of a contrarian view point.

There will be no further stimulus or quantitative easing, nothing to get excited about anyway.

The crash of 2008 caught many friends and family of the oligarchy by surprise. Alot of wealth was destroyed (on paper) and friends and family of the oligarchy yelled, screamed and ranted.. and threatened to pull their support which struck a nerve with the political whores.

Hence a massive stimulus program that served no great purpose, a bank bailout and MBS debt purchase programs were demanded quite literally at gunpoint, then the voters were manipulated to vote for their Obama candy and all were happy.. no, not all.

The friends and family of the oligarchy had their chance to make up lost wealth (on paper) and divert their assets, recover their status and promised to keep funding the political whores that made it possible.

There was never any real urgency to protect the bulk of the people, the peons, the peasantry, the serfs outside of the circle.

Hence it is my conclusion that there will not be a second second chance for everyone else. You have to realize that the friends and family of the oligarchy have their designated seats in the rescue boats. Not only that, the rescue boats are filled with friends and family of the oligarchy and the boats have been lowered, the lines have been cut.

The rest of the boat will go down with the sinking ship unless they jump now and might have a chance to keep themselves above water long enough before getting picked up somehow.

It's too late. Look at the non-urgency when they discuss the need for more quantitative easing. There is no more urgency. Unemployment keeps creeping up but that is not of their concern. They are not affected by it.

Unless you are part of the circle, you are on your own.

[MachoMan]

There will be more stimulus, just not in the same scope/severity as QE 1.0 "shock and awe".  Effectively, unemployment payments, food stamps, on down the line are stimulus payments.  These are all necessary to keep people from breaking shit.

But you are right in that there will not be a magically exponentially increasing QE schedule to try and reflate the credit bubble...  even ben knows he's pushing rope on prom night.  The only chance they have to prolong the looting is austerity.  The only chance we have to stop the looting is repudiation.  I suspect they will have their way far longer than most anticipate.

[Hellholeratrace]

from reuters this afternoon: "The White House stressed on Thursday that no second economic stimulus package is being considered as part of new measures under review by President Barack Obama's team."

[geopol]

China Blocks US-UK Attack On Euro

The Anglo-American hedge fund attack, as we have documented here, employed credit default swaps as the primary weapon against Greek, Portuguese, and Spanish government bonds. The failure of London and New York to induce a panic flight out of the euro during the May-June timeframe was partly results of the German self-defense measures, involving bans on naked credit default swaps and bans on naked shorting of German equities. In addition to this, Chinese support for the euro has played a decisive role.

There is every indication that the Chinese made a decision not to allow the destruction of the euro during the late spring and early summer. That decision was technical, commercial, and political at the same time. The technical part was the China sought to re-balance the basket of currencies it uses to maintain the international stability of the renminbi. As the euro looms larger in Chinese trade, purchases of euros and Eurobonds are in order. It is also worth pointing out that the Chinese have not delivered on their promise to radically raise the international value of the renminbi, as hysterically demanded by Tiny Tim Geithner and others.

The commercial and political sides of Chinese support for the euro were reflected in the June visit of the Chinese vice prime minister to Greece, notably to the port of Piraeus. This Chinese envoy signed more than a dozen important economic cooperation deals, including shipping and shipbuilding, telecom, and container ports. The deputy Greek finance minister, Theodoros Pangalos, was quoted as saying: “The Chinese want a gateway into Europe. They are not like these Wall Street [blankety-blanks], pushing financial investments on paper. The Chinese deal in real things, in merchandise. And they will help the real economy in Greece.”¹ The emphasis on the production of tangible physical commodities by the Chinese, in contrast to Wall Street’s reliance on a mass of toxic and kited derivatives, points to the real basis of Chinese economic ascendancy. If the Chinese are wise, they will not go overboard with short-term greed, but rather be ready for generous concessions to the Greek labor movement, so as to get the unions on their side. In any case, these euro-denominated Greek purchases are one obvious reason why Beijing is holding fewer greenbacks and more euros.

Will Hungary, Ireland, or Budget Austerity Sink The Euro?

The Anglo Americans are still beside themselves with rage and consternation over the fact that their original attack on the euro has not worked. But since about the middle of August, the euro has fallen from over $1.30 to about $1.26 or thereabouts. Part of this is due to the decline of the New York Stock market, given the long-standing dollar-Dow trade-off. Another negative factor for the euro is doubtless the cruel and stupid deflationary policies introduced by many EU governments in a craven attempt to ward off further speculative attacks. In a depression, government spending is the main thing that supports the entire economy, so cutting the government budget is a recipe for economic disaster, as some EU countries are now being reminded. Another factor is simply the month of August, when Catholic Europe, including France, Italy, Spain, and Bavaria, tends to shut down.

Where Will The Next Panic Break Out?

The world is now in a time of mixed signals and cross-currents. The forces of depression, in the form of $1.5 quadrillion of toxic and kited derivatives, are most emphatically still lurking, and since they have not been shredded, canceled, deleted, outlawed or abrogated, they will soon find a way to explode once again. Serious financial observers are now waiting to see where the next currency or banking panic will come. Over the last day or two, there have been reports of heavy selling of the Hungarian forint, which is inside the EU but not part of Euroland. Late on August 24, Standard & Poor’s announced a major downgrade of Irish debt, switching to a negative outlook. If the panic comes in Hungary or Ireland, then the euro could indeed go down. CNBC traders, in response to the question of how to make money off the crisis of the Hungarian currency, immediately replied that the way to do that was to short the stocks of Austrian banks, who hold much Hungarian debt. From here, the crisis would move on to Germany, and soon the entire continent would be back in the soup. The British pound sterling also has massive vulnerabilities to being the next monetary unit to crash.

But the most likely victim remains Wall Street itself. A glance at the stock chart of Bank of America over the past three months shows what any technical analyst would regard as a very ugly picture. There are rumblings that Citibank may be heading towards liquidity trouble in September and October. For those who like to read the tea leaves, CNBC’s Jim Cramer today responded to a question about Citigroup by emphatically declaiming “Stick with Citi,” and “Stick with Pandit.” Citigroup, he affirmed, remained his “favorite speculation.” For contrarians who have learned something over the past two years, this may already be enough to head for the hills. In any case, if the banking panic breaks out in New York, then the dollar may turn out to be the victim.

Bernanke and QE2

Today also brought the publication of the August 10 minutes of the Federal Reserve’s Open Market Committee. These minutes reveal a serious split in the management committee of the US financier oligarchy. Bernanke and his majority are afraid of deflation, and want a new round of quantitative easing – already dubbed QE2 by the Street. But there is also a significant Austro-monetarist reactionary minority who regard inflation as the greater evil, and to whom a deflationary crash would not be unwelcome, as libertarian rantings over many decades have made plain. These tensions may well be on display at the Federal Reserve’s annual conference at Jackson Hole, Wyoming at the end of this week.

Another CNBC analyst has ventured to predict a ragged decline of the Dow to about 5,000 over the months ahead. If that begins to happen, then the danger of deflation will be enhanced, and in such a scenario the dollar would actually tend to increase in value compared to other currencies. On the other hand, Helicopter Ben Bernanke’s trademark is his strategy for flooding the system with bailouts and other liquidity if deflation looms. Bernanke is the captain of that ship of fools known as the QE2. The one certainty is that there is no recovery, and that the second wave of a world economic depression dominates the world.

[walküre]

Good post.

The high profile Chinese visit in Greece made an impression. That was their strategy.

Once again the Euro is being down talked to create fear and panic among European savers.

Bernanke would love to embark on more QE but Europe will not go along with it and the Dollar as reserve currency is in danger. The Euro is setup to take that role over the midterm.

No reserve currency, no more money manipulation monopoly by the Fed and the US would soon resemble Argentina at best or Zimbabwe at worst.

[woolly mammoth]

I always look forward to reading your perspective geopol. Thanks for taking the time.

[chet]

Too bad the only alternative to eventually balancing the budget is never balancing the budget.  We're scroomed.

[Hall 9000]

Let Slip the Dogs of War

[ex VRWC]

You reminded me of one of Calculated Risk blogger Tanta's famous columns predicting the mortgage crisis, written in 2006: Let Slip the Dogs of Hell

[Hall 9000]

We troll the same waters :-) 

[Hall 9000]

http://en.wikipedia.org/wiki/Trolling_(fishing)

[ex VRWC]

I figured you meant THAT kind of trolling!  I have gotten myself called a 'troll' once or twice, but not too often, thankfully.

[CitizenPete]

Big Ben 

`Too-Big-to-Fail Problem' Must Be Solved http://www.youtube.com/watch?v=S_smiLUAj0w&feature=sub

[Rusty Shorts]

 - is it just me, or is Ben's voice quivering? ...also, is that Darth Vader, or a Reptilian Robo-cop sitting to the right - left of Benny?

[kathy.chamberli...]

what an ugly man.

[max2205]

----------------------------------------
Breaking News Alert: Obama's economic team considering new stimulus package September 2, 2010 5:21:20 PM
----------------------------------------

With the recovery faltering less than two months before the November congressional elections, President Obama's economic team is considering another big dose of stimulus in the form of tax breaks for businesses -- potentially worth hundreds of billions of dollars, according to two people familiar with the talks. Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit, say people familiar with the talks.

http://link.email.washingtonpost.com/r/0H2RO6/0GGQXY/2V9IAW/F1R6GN/NGQ5Z...

For more information, visit washingtonpost.com

----------------------------------------

Explore Washington Post content in a whole new innovative way. Click below to explore Time and Space ----- sponsored by Sprint.
http://timespace.washingtonpost.com/project/top-news/

----------------------------------------

Get breaking news alerts sent to your mobile phone. Sign up by texting NEWS to 98999.

Manage your e-mail subscriptions

To unsubscribe, click here

----------------------------------------
Copyright 2010 The Washington Post Company

Washington Post Digital
E-mail Customer Care
1150 15th Street NW
Washington, DC 20071

[Rusty Shorts]

What's the catch??

[tmosley]

You are vivisected on the 5th of November.

Remember remember?

[Treeplanter]

Shaky Dems may not vote for another scamulus.

[Hall 9000]

09- 2-10 02:32 PM

'Inside Job' Trailer: New Documentary Investigates The Financial Crisis (VIDEO)

"The trailer for Charles Ferguson's new documentary "Inside Job" has been making its way around the web (hat tip to Nouriel Roubini's Twitter feed). The film has been getting serious love from critics, including winning the top award at Cannes this year."

Roger Ebert called the the film "devastating" summed it up this way in May:

"From Roosevelt until Reagan, the American economy enjoyed 40 years of stability, prosperity and growth. Beginning with Reagan's moves against financial regulation, that sound base has been progressively eroded. The crucial federal error (in administrations of both parties) was to allow financial institutions to trade on their own behalf. Today many large trading banks are betting against their own customers."

"Inside Job" is due out in October. WATCH the trailer:

http://www.huffingtonpost.com/2010/09/02/inside-job-trailer-new-do_n_703...

[AssFire]

We appreciate you have the most exceptional copy and paste abilities on the site...but please, no more of the political thing. Both parties led us here.

Again, please consider the source..

the huffington post???

[Hall 9000]

" getcha popcorn ready, bitchez!! "

[Arkadaba]

I've seen that trailer on a number of different sites over the past few days and not all of them political. I can't wait to see it!

[chrisina]

It clearly states that the crucial error was made by administrations of both parties.

The fact that it started under Reagan is not political, it's a historical fact : just look at a curve of total credit market / GDP and you'll see that

http://www.comstockfunds.com/files/NLPP00000\292.pdf

. from 1945 to 1980 total credit market remained within a tight range between 130% and 160% of GDP.

. from 1980 to today total credit market exploded from 160% to more than 330% of GDP. The FIRE industry and with it credit became the main engine of economic growth in the USA, forcing delocalisation and outsourcing of real productive segments. The share of corporate profits that went to the financial services industry grew from less than 10% to close to 50%. The real class conflict wasn't between the traditional social classes but between industrial and financial capital.

This doesn't mean it was the Republican's fault. Most probably a democratic President in lieu of Reagan would have done the same thing. And that finance led growth was continued under Clinton and under democratic congresses.

The blame goes certainly more to the Chicago School who has dominated the economic and business mantra for the last 30 years than to any given political side...

[Treeplanter]

Who bailed out NYC when it was going bankrupt?  Lindsay or Dinkens was mayor, I believe.

[Fast Twitch]

 Martin Armstrong's economic model forecasts Jun 13 2011 as the next turning point. Who knows and/or who cares...just saying. 

[Madhouse]

The perfect little war: Venezuela. Call him a drug dealer and stereo blast him...

[Treeplanter]

El Jefe may yet pick a fight with Columbia.  Bad news for El Jefe.

[Sherman McCoy]

Scott Minerd is really good. I rememeber him when he was a structured note salesman at Morgan Stanley. At Guggenheim, he nailed the finacial crisis, predicting default on WAMu and other banks - made me a bunch of money. This is probably the best piece XH has put out in months.

[Sherman McCoy]

One thing though, your link to the full text is broken

[Apocalypse Now]

I think two points need to be made, one is that we are no longer on a gold standard so a determined fed with access to HFT and the printing press can cause inflation in stock markets.  We are currently witnessing that with a complete disconnect between mutual fund flows and the broad economy versus the stock market.  The other point is that we now have derivatives that can move the underlying (futures/options) and the PPT to support markets.  They goofed already, they should have been propping (as long as they were going to intervene anyway) more to create stability and stem the flow of exodus from the market.  I thought stocks could have been used as a mechanism/conduit for capital inflation to consumers, but with all of them fleeing because of volatility how can they get money into consumers hands to counteract the deflationary spiral (lower credit, lower house prices/ home equity loans, lower wages, lower employment, and now lower stock prices?).

Great excerpt from a Financial Intelligence Report newsletter I received regarding all the 90% up or down days with the best explanation of what happened today, I agree completely:

"What it means is that the street has programmed their computers to be "all in, or all out" at once. They know that the long term outlooks is dismal, so what we have in a nutshell is that the ENTIRE MARKET IS BEING DAYTRADED.  You heard that right folks. Forget fundamentals, forget earnings, forget book to sales, credits, debits, assets and all the things that "used" to be important. Right now the way the street makes it's money is by whipsawing the market at incredible speed."....

"MYFOXNY.COM - If you think you've been seeing more people sleep on city streets, statistics back up the perception. The homeless population living on New York City streets has gone up 50 percent in the past year, according to city statistics reported by the HellsKitchenLife.com blog.

Whoa. More people living in the streets? Yes. In fact tent cities are popping up all over. In select areas, the best bridges to sleep under have become something of a high priced real estate holding. People are paying other people for the right to spend a night under a bridge. Now somehow I'm asked every day to believe that we're in an expansion, and that it's an incredibly strong one. Okay, pull my finger.

Look folks, the bottom line is that we are seeing all these 90% panic days because the market is now programmed to make it's money on high frequency, "all or none" in and out trades. They know the future is bleak. they are NOT buying and holding. Only the poor suckers who have their money parked in 401K funds, where the manager of that fund is indeed fully invested are "in for the long haul". The smart money, the movers and shakers are daytrading the whole damned market. Up 200, down 200, up 260, down 170... it's GS, JPM, CITI and the rest of the "boys" going ape.

You guys know I like to focus on the "fraud" that has become our market and nowhere was there more evidence of outright fraud than on Tuesday into Wednesday. If you  pull up a chart of the last two minutes of trading for Tuesday, you see this insane fat green bar, so big.. so fast, it literally "gapped". Well the data shows that in those last two minutes on Tuesday "someone" bought 200,000 contracts. Now, a normal volume for that time slot would be maybe just 25K. Why would someone wait all day, and then jam a 200K contract order?

Wednesday morning the futures were up over 100. Why? According to the genius's on CNBC it was because of better manufacturing news out of China. Now that would be a wonderful explanation, except for the fact that the Chinese market didn't like the news. So, why should we be up 100 when the Chinese market themselves didn't get excited?

No.. this was not about China, it wasn't about Obama making believe we're "all" leaving Iraq. It was one of just two possibilities. 1) they have fudged Friday's jobs number and then leaked it.. or 2) the Fed directed the institutions to "save the market".  That's all it could be folks. In fact, this morning while seeing the DOW up 120, the ADP empoyment report hit. They were looking for a gain of 13,000. Instead they LOST 9000. Yet the market didn't blink.

That my friends is FRAUD. Manipulation. They are in total control of this market and they "make" it move to where they want it. Granted they can usually only do it for short periods of time.. and then it has to revert to a bit of reality. But it sure is discouraging seeing that kind of action, where "someone" buys a quarter million contracts, and then "like magic" the market is u 120 the next morning. I guess I didn't get the memo that told me to buy several million dollars worth of options, so that I could make several million in ten minutes the next day.  By ten AM we were up 240 points. If you think that someone bought 200K contracts because he "felt lucky" I got a bridge to sell ya. That my friends was inside info.

Okay the question of the day however is this... is this a one day flash in the pan or not? If you remember back to Friday, we had a 170 point day. then Monday we gave back 150 of it. Wednesday was flat. Now today they put on the ultimate show. but get this.. August was a pretty lousy month for stocks, yet on August 2nd, the first day of the month trading.. we gained over 200 points. Is the same thing going to happen now?

My best guess is that "they" are trying to show people that September doesn''t have to be the worst month of the year, and they're going to try and hold it up. But I also think that to do it, they'll almost have to come right out and admit to the fraud. Yes they can jack us up or down for a few hundred when they please. But to keep it really going, they'll need to buy those 200K contracts every day.. even for the Fed that's a lot of money to hide.

I don't know if we're getting set up for a massive rug pull on jobs Friday.. or.. if they have jiggered the numbers for Friday, and they're going to boom us higher for another few hundred points. Either situation is perfectly plausible. So, this morning we covered our shorts, and sat tight. If they want to try some show of bravado for September, fine we'll go long, I have several names I think can move well. But, if this is just a flash in the pan, I didn't want to go long, and have it all tossed in my face in a day. "

My thoughts:

Today may have caught a number of investment managers flat footed, they must match or beat their benchmarks (tough if in cash today) so higher beta might pick up again for the managers to try and make it back (doubling down).

This is a prisoner's dilemma, if we all agreed to go only long in the market for the next five years we would all be paper rich and pensions could be fully funded (baby boomer cash outflows for living expenses and unemployed is also a problem).  Perhaps OBAMA SHOULD SIGNAL NOW IS A GOOD TIME TO GO LONG IN THE MARKETS like he did last year since they are clearly supporting the market (the problem is we don't know when they do it and when they step aside).  At least that way individual investors could also participate instead of all the coordinated banking outfits manipulating up and down and eating through stop losses (they benefit from the volatility).  See folks, the volatility benefits them in the short run and as we saw from the melt down last year these people are not long term thinkers.  If the market continues with extreme volatility and drops without intervention, it will collapse because people will run to safety (mutual fund outflows).  Traders are sharks, not gardeners so they are not developing a market with increasing customers.  Derivative leverage reform and dark pool transparency could fix that if we wanted a real market.

Too many questions, not enough answers, and too much uncertainty causing chaos.

[Treeplanter]

Good one.  The low volume makes the manipulation that much easier.  Late yesterday the SLW was going sideways while the spot price was repeatedly touching 19.70.  Massive shorting.  A combination of day trading and the cartel, I suspect.

[palmereldritch]

Fantastic historical nuance and background in the post.  Props to Scott.

The last paragraph was the most disturbing for its clear and honest context:

And while America in 1938 and onward was a different country, whose manufacturing industry and thus real economic output potential, was only starting to stretch its wings, further having the rather tragic benefit of World War II as an unprecedented attractor for record economic activity, the current outlook is far more bleak. The US consumer is on average far older, the pension system is on the verge of bankruptcy, the US' chief export (at least on a relative basis) is services, and the spectre of a war at this juncture would have far more dire ramifications

Given this reality, I think the people have to question (when the next regional or global war that may be staged and/or waged)...

Who the real final target may be ?

Is the enemy foreign or domestic?   Will the next major war be marketed as WWIII but instead be a final stealth action by the original patrons of the Hessians?

The interesting thing about the American Revolutionary War is that although it was an amazing victory for personal liberty, free markets and rule of law, it was ultimately only a local victory in the broader context of time and geography against a foe who operates with centuries of experience and seemingly limitless resources of destruction at its disposal.

Half of the battle is recognizing your enemy.  The benefit of todays society and resources is the option of information communication and intelligent political action as a first and civilised weapon.  Let us all hope that by itself, it is sufficiently successful in preserving and advancing the victories of America's founding fathers.  

Blood spilled in the defense of liberty is a precious commodity.  Lest we forget and not honor the sacrifice that went before us.

[Tense INDIAN]

more bad news::

http://www.businessweek.com/news/2010-09-01/construction-spending-in-u-s...

[MrTrader]

SKYNET PREDICTS CHRISTMAS RALLY. SKYNET TRANSMISSION END.

[John123456]

social networking website development

[Herry12]

Article is very interesting,thanks for your sharing.I will visit this site.welcome to my site!.. cheap site hosting
windows web hosting
windows vps hosting
cheap hosting