Good post, Artysim!

I am quite frugal with my money, and have seen a 30-100% rise in the grocery items we buy since January. This on top of increased gas prices, and with a stagnant salary (such is the price of working for a small company, something I intend to remedy).

The truth is, DC's politicians don't care about the man on the street. Never did and never will.

Thanks Gideon. I'm shocked that the mainstream media has done so little about reporting these economic problems... I guess they want to keep people calm so that they'll keep investing and consuming as long as possible. The thing that really gets me is reading the economics articles on MSNBC- every single one of them boils down the turmoil in the market to "pow people with bad credit bought a house when they shouldn't have!" when the reality is much more frightening!

good article! and I agree 100%, nothing more needs to be said by me!

Well, that sucks.

At least now we know where our dollar went.

Enron did the same thing, before the collapse - they were buying and selling stuff, but booking the revenue of a 20 year contract in the first year. AND, if they didn't sell contracts, they would book the revenue anyway based on a made up number that the contract was worth, based on the aforementioned pagan ritual.

Even if the CFO and his cronies hadn't robbed the company blind it still would have died, albeit slower and possibly would have been salvageable with a restatement of the financials.

As it is, derivatives are not something you want to get into unless you know what you're getting, which is a worthless piece of paper.

Pretty good. But you are confusing timeslines a bit (that does nto detract from the over all article, just the timing of a key point). That part is the timing of the housing boom and bust. The boom is over, and the rate decline is not fueling it, but trying to soften the bust part of it.

But you did leave out a critical factor. Greed may have played a part (and I will not argue that here), but the driving factor was the "Best intentions" and the road to hell. Even now the politicians are trying to turn this into a crises (instead of just a sharper cycle) by trying to bail out those who over extended! And why did they over extend? Well, those very same politicians were looking at ways to get more people the American dream, and making it easier for them to get credit, so rules were changed, and 100% mortgages and interest only loans came about. Sure it helped some on the bubble to get loans. Risky high cost loans (you cannot legislate risk).

And others took advantage of them as well. The Bubble Burst, flips stopped flipping, and defaults are up. And while the pain for Mr. and Mrs. JOnes is bad to them, unless we allow the market to correct itself, we are only asking for worse times to come.

But one last point. If you will check the history of world economics since WWII (when America really became a force), you will note that there is a 20 year cycle. And we are in a European cycle right now. They are going up, and will for another few years, before leveling off and maintianing their ascendency for about 7 years, and then start a downward cycle with America ascending. Some may be alarmed at this, but having lived through several of these, I am just investing in over seas stocks now, until the apex is reached. Then back to the US. I am nto alarmed, and do not see this as a new armageddon.

I'm shocked that the mainstream media has done so little about reporting these economic problems... I guess they want to keep people calm so that they'll keep investing and consuming as long as possible.

This is definitely the case!

A lot of people are waking up to the true state of the financial markets now, although there are still so many who don't really take note of what is really going on.

I have a few investments and although I might not be at the top of the totem pole, what is happening is very alarming to me.

Good article!

Sorry, but I'm gonna call a bit of b.s. on the fears of inflation raised in the article.  While the interest rate cuts may spur a little inflation, I don't think it'll be near as bad as the article implies here.

If the dollar drops against other currencies, U.S. goods become more attractive for purchase with those currencies.  That should mean (longer term) that U.S. companies are able to sell more of their products over seas which is a good thing for those companies.  It may mean that the companies are able to cut their prices and/or hold their prices lower than they otherwise would have had to set them at, and yes, that might help spur increased prices back home as the producers start choosing between selling here in the U.S. versus exporting, but that is not even close to the case right now, and I don't think it's that close to happening even in the future.

The article is a good one and raises some points for discussion, but for now it seems very Chicken Little-ish to me.

I am quite frugal with my money, and have seen a 30-100% rise in the grocery items we buy since January. This on top of increased gas prices, and with a stagnant salary (such is the price of working for a small company, something I intend to remedy).

A lot of the increases in what you are paying for grocery items are coming from increased transportation costs, and increased costs for anything related to corn.  Thanks to AlGore and friends, and the insistence that Ethanol is the answer for our transportation needs, corn is getting very expensive and farmers are paying more for it which they in turn pass along in the price of milk and beef.

It's also costing more to transport everything thanks to higher oil prices.

Salaries being stagnant is nothing new as companies always lag on paying employees and never want to raise wages until they absolutely have to.

The truth is, DC's politicians don't care about the man on the street. Never did and never will.

That is quite true.

But one last point. If you will check the history of world economics since WWII (when America really became a force), you will note that there is a 20 year cycle. And we are in a European cycle right now. They are going up, and will for another few years, before leveling off and maintianing their ascendency for about 7 years, and then start a downward cycle with America ascending. Some may be alarmed at this, but having lived through several of these, I am just investing in over seas stocks now, until the apex is reached. Then back to the US. I am nto alarmed, and do not see this as a new armageddon.

Excellent points and I think you've hit a lot of the nail on the head here.  The economy is quite cyclical, always has been, always will be.

Dr Guy,

I agree with you entirely about the cyclical nature of economies, and about the timing of the bust of the housing boom. However, it's my belief that the housing boom should have ended several years ago. Also, typically a nice market correction happens over several years- if it happens too quickly then we risk another 1987 (hey that was 20 years ago, right on the money what you said about the timing of those cycles eh?) or even worse a 1929!

My concern is that the fed has over-expanded this bubble to the point where the correction will be very, very messy. Think of it like a drug addict, and cheap money is like heroin. Just as the druggie starts to come down off his high he injects more heroin to prevent himself from crashing and burning... the longer he keeps doing this, the worse it is going to be when he runs out of heroin (that, or outright kills himself) Now equate that into the market- the boys at the fed knew several years back that if they continually flooded the market with cheap cash it would bring short term gain for long term pain.... don't get me wrong, keeping the rates low can be a great stimulus for the economy, but it is only supposed to be done for a brief time to "shock" the economy, like a little bit of adrenalin. But if you do it too long, as they have, you then have to get more and more creative with your financing schemes.... and voila now we have SIV's (structured investment vehicles), CDO's (collateralized debt obligations) and now the banks are trying to keep the party going by creating their M-LEC, "master liquidity enhancement conduit" which sounds frighteningly like some form of special viagra only bankers can use???

I don't think that the sky is falling and that alles ist kaput. But I do think that the good times can't keep rolling forever, and that since this bubble has been so over-inflated there is the risk that very serious economic harm could come to a lot of folks.

terpfan1980,

I applaud you for calling b.s on this article- a person should never believe something at face value, and should always take things into serious consideration before taking sides on an issue. If anything, I would encourage you to investigate the claims that I've made. But for the love of God, don't do your investigations at the CNBC or MSN websites, or God forbid the newly spawned Fox business channel. It could be WW3 with nukes crossing paths in the sky and these folks would be telling you that everything was fine and to keep investing, so that they could get as much money in their pockets before the whole shebang falls apart.

If you are going to do your investigations with mainstream media sources, please take it with a pinch of salt, and for a kick take note that most of them will repeatedly harp on

A) This problem is caused because of poor people with bad credit who were too stupid to know what they were doing

The fact that there is no deeper analysis as to why the market is in such turmoil. You won't get many mainstream media sites explaining the mechanics of what a CDO is or how it works, because frankly people don't care about the machinery that runs behind the scenes in the market.

Today at one point the DOW dropped almost 200 points and then recovered almost entirely to finish at -0.98 of a point down from yesterday. To me that sounds like the plunge protection team (established after the 1987 crash) had a definite hand in that. It would be damn embarrassing if the DOW had another big drop so soon after last friday, when it dropped more than 366 points. Funny thing is that you won't see too many business news sources talk about the plunge protection team. They'll just keep telling you to buy more Washington Mutual!

Cause doesn't matter, terp. What matters is the impact it has on the man on the street. And, last I checked, the spaghetti that went from 50 cents to 64 cents for a box didn't come from a cow!

When every dollar matters, you notice the cents! I'm only hoping I can hold out long enough not to have to quit school early to take on a third job!

the boys at the fed knew several years back that if they continually flooded the market with cheap cash it would bring short term gain for long term pain.... don't get me wrong, keeping the rates low can be a great stimulus for the economy, but it is only supposed to be done for a brief time to "shock" the economy, like a little bit of adrenalin

Just a couple of points.  The first is that the housing bubble did not last that long.  It died 2 years ago, and is just now working through the system (ARMs are usually set not to Adjust for a period of 3-5 years).  That is why it looks like the bubble kept going when in fact it ended in late 2005.  Due to the nature of this bubble, the downside is sharper, and hence why they scare and doom and gloom of some to make this out to be atypical.

Second, your 20 year thing.  And right on cue, the NYSE dropped about 367 points on that anniversary (why is Oct 19th such a bad day?  Probably because people see the year end coming and decide to cash out at that time).  But unlike 87 or even 29, the government and the Financial people have enacted some brakes into the system that will not allow those events to occur again.  At least not on "a day in history" (although in both cases it was just the pinacle of the drop, not the whole drop).  Between you and me, I dont think the brakes are going to do anything other than stretch out the next crash (we can call it that for want of a better term now) over several days instead of being one day.

And finally, just a minor point of clarification.  The Fed cannot "flood" the market with cheap money.  They can only make borrowing the money cheaper (and due to the multiplier effect, hope to influence the amount of wealth in the economy).  Due to the whole dot com bust, and 9-11, I do think the feds went to far on their reduction of the Interbank rate (although I do plead guilty to taking advantage of it).  And then they also went too fast on the upside, that caused the housing bubble to burst so hard.  I kind of think the latter was necessary due to the mistake of the rate reduction.  That excess had to be curbed.

Both of those actions caused the current situation.  And while bad for some, the last one is necessary, else we were headed for double digit inflation again.  Kind of like getting the flu.  Once you get it, you have to take the medicine, no matter how horrible its taste. 

All this is to say is that I do not share your foreboding, but could easily if my education had not been under a great Economist, Dr. Rapp. (A disciple of Milton Friedman and Walter E. Williams).  But quite frankly, I appreciate your very knowledgeable and educated concerns and will only point out that there are only a handful of laws in Economics, and the rest is just opinion.  Mine being no more valid than yours. I dont believe this is something to fear, but then I could be wrong.

A) This problem is caused because of poor people with bad credit who were too stupid to know what they were doing

Now see, on this area I think your original comments, and/or those of others that said that the problem is caused by greedy S.O.B.'s in the money business, and in the real estate business that took advantage of those poor people and people that had no business getting themselves on the hook for homes they should have known they couldn't afford, but bought anyway because some slick hustler real estate broker/agent told them that they could buy that home and afford the payments on it.

The people handling the purse strings of the real estate sector in the economy were making money hand over fist when people were buying these homes and taking out these large mortgages, then going back for home equity loans that they didn't really need, but wanted so that they could spend extravagantly, and those people really didn't care whether or not their victims, uh, customers, could afford it or not.  As they say, that's the beauty of it, as the money men/women made their money no matter what happened.

Except, uh, now some of those money men and women aren't making money because the companies they worked for have too many bad loans on the books and they are looking for someone to help bail them out just as the people staring at foreclosures are looking for someone to help bail them out.

I don't want to be cold, cruel and heartless, but I have little to no sympathy for anyone involved here.  People should spend within their means.  Borrow when necessary, and buy a few luxuries along the way, but stop trying to beat the joneses all the time.  If more people took that approach, then we'd see people living in smaller homes (more like the ones they grew up in with their parents) rather than McMansions that they can ill afford to heat or cool (and by the way, that heating and cooling is something that AlGore and friends would like to talk to them about as their homes wind up being big users of electricity, which is a big cause of price increases across the board, and which, oh yeah, by the way typically comes from coal burning plants that spew CO₂)

Cause doesn't matter, terp. What matters is the impact it has on the man on the street. And, last I checked, the spaghetti that went from 50 cents to 64 cents for a box didn't come from a cow! When every dollar matters, you notice the cents! I'm only hoping I can hold out long enough not to have to quit school early to take on a third job!

Understand the issues of cost and noticing the cents here and there, but in terms of the discussion here, the cause is important.  The cause isn't inflation spurred on by the bust in the housing market and money policies,  it is because of ignorant energy policies and an insistence on continuing down the Ethanol path despite other options that might be more efficient (hybrid technologies as an example, Nuclear energy as an example for powering homes, etc.)