The world has finally woken up to the fact that the world is a dysfunctional mess. by Bill Gee
(centrist)
Friday, August 5, 2011
About a week ago, a friend asked me when I thought the next “crash” in the market would come. I told them it was likely to occur on Thursday, August 4th. The reason why I felt this way was that I was confident that even if the debt ceiling crisis were to be resolved, that Standard & Poors and the other rating agencies would still downgrade the US credit rating from its current AAA status. While I was wrong on the “why”, I was still right on the “when”.
So what happened?
What happened is that the world markets decided that it didn’t need to wait for the rating agencies to downgrade US debt. In fact, after the debt deal was signed, Finch said that it was reconsidering the ratings downgrade because they felt that now the US government was “heading in the right direction”. The markets weren’t buying it. There will likely be a slight rally in the markets today due to some positive jobs numbers (clutching at straws actually), but I believe we are now seeing the start of an overall downward trend.
Crisis of Faith
There were several factors contributing to the sudden shattering of faith in the markets, not all of which are the fault of the US. These include 1) The European Debt Crisis, 2) High Unemployment, 3) The US Congress, 4) Growing political and Ecological Unrest. All of these factors taken together are testing the faith of the markets, and finally the markets are starting to break.
The European Debt Crisis
Greece is going to default on some of its sovereign debt – that’s a fact. So is Portugal, Ireland and Spain. The European Central Bank is now trying to figure out which bonds will fail so that they can keep the majority of the cash flow going. The “elephant in the room” is Italy, Europe’s third largest economy. If they fail, there isn’t enough money to bail them out.
High Unemployment
All this economic uncertainty has generated extremely sluggish job growth. Tech companies have been doing well this year because rather than hire new workers, companies have been working on production issues by seeking technical solutions instead. State and local governments are laying off thousands of workers each month and the Federal workforce is going to see even larger numbers of pink slips as billions of dollars is slashed from the Budget in the coming months. Why hire more workers if you think that you’re going to need to cut back on production?
The US Congress
According to the latest CNN poll, Congress has an approval rating of a mere 14%! Can you blame them? Not only did they waste most of the Summer trying to fix a problem they created themselves, they did next to nothing to address job growth. Then when they finally fixed the debt ceiling problem, they decided to go on a month-long recess to prepare for the next election! That’s like the bank teller who decides to go on lunch when there’s a line of customers going out the door.
Growing Political Unrest
The so-called “Arab Spring” has just taken an ugly turn in Syria, anti-immigrant psychos are going on killing sprees in Norway, and riots are breaking out in the Euro Zone. Meanwhile, climate change has resulted in the worst drought ever in the South West, the deadliest tornados in the South and Mid West, the worst heatwave on record in July, and a new weather-related famine in North Africa. This past winter saw some of the heaviest snowfalls on record and this coming winter promises to be just as bad, if not worse, according to the Insurance Institute of America.
With all this on our collective plates and with near-zero confidence that any government has the ability to contain or fix these problems, it is no wonder why the markets are reacting badly. Perhaps they will start fooling themselves into believing that everything is okay again, but somehow I think we have just come to a major turning point in our history.
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