Wow.

About two hours ago Paul Krugman remarked on his blog that "Larry Summers argues that a Fed rate hike would be a big mistake; I completely agree. Yet he also suggests that the Fed 'seems set' to do this foolish thing."

A glance at today's horrifying DJI index would seem to put their fears to rest. From the starting gate to minus-1000-points+ to half that and now rising again. Absolutely phenomenal. As I write, the index is at about -700. Oh, Christ. Now it's at -800. This is going to be one very long day for investors. On the upside (one strains to find one), so much for an interest-rate hike.

***

See? He told us so. 

(Isn't China kinda guilty of practicing Trumpist capitalism?)

***

I'm enjoying (if that's the word) CNN's coverage. Moments ago, one call-in equity expert said the trick to this meltdown is: "Don't panic!" The network then cut to a correspondent on the stock-market floor: "What we're seeing right now is a lot of panic."  

 

Comments

[Peter G]

The trick to making money is such a situation is to make sure you are the first to panic while telling everyone else that all is well.

[Peter G]

Btw, here's a bright side: remember how you guys initiated a world wide recession in 2008 with worthless collateralized mortgages sold as triple A investments? With massive amounts of money insuring them against their inevitable default? Do you remember how the world got even with you? They did it by dumping vast amounts of capital into the US as the least leakiest boat on the planet. And gave you a great opportunity to spend your way out of recession with Keynesian stimulus spending at negligible cost. Essentially you were given piles of money at nearly zero interest. Which opportunity you wasted.

I did not think such an opportunity for America would be seen again in my lifetime but behold, it is about to happen again. And it is going to happen when a lot of American politicians are running for office and infrastructure spending might actually seem like a good idea.

[Bob]

What is the situation? As far as I can tell this has mostly to do with the Chinese market being over-valued and slowing. Unless a person is totally invested in equities, especially Asian equities, this is just an expected correction. If the freaks on Wall Street, who usually take the most aggressive positions, weren't in a tizzy I'd be worried.

[Bob]

You're right. The dollar has been gaining for weeks. $1 US is just under $1.33 CAD. Time to go north of the border, visit my friends and do some shopping. If I had any real sense I'd buy a house up there and just stay.

[Peter G]

Oh this could get much worse very fast. Especially if a deflationary cycle is initiated through currency devaluations. That will cold cock any economy. The Chinese decided the key to distributing wealth to the middle class (and give them equity to spend) was to allow them to invest in the Chinese markets with borrowed money at low interest rates and negligible security. Which like your ever rising housing markets worked great as long as either the housing prices or stock market prices kept rising. Sadly there are margin calls when markets fall. And all those stocks purchased in China by those small Chinese investors are the only equity they have to pay the margin calls. How can this affect the US? Trade imbalances notwithstanding the Chinese buy a lot of stuff from the US. With currency devaluation it is more expensive to do so while their domestic demand is falling at the same time. So the US and everybody else will get hit too. It may be the Chinese turn to ignite a worldwide recession. Whether or not the contagion to the US can be limited will depend entirely on how effectively US domestic demand can be stimulated by government spending. So. Yea. We're in for a shit storm.

[Bob]

The US imports 4 times what it exports to China: http://www.census.gov/foreign-trade/balance/c5700.html

I'm not saying I know how this will all pan out, but I'm not worried yet.

[Peter G]

Yea but that's not really the whole extent of the problem. The Chinese buy a lot of stuff from a lot of people. Not the least from places like my own country Canada where they buy a lot of natural resources. And they pay us in US dollars. They won't be just doing less trade with you, they'll be doing less trade with all of us and we do buy a huge amount of US produced goods. We're all going to buying less US goods because we're all going to have less money. You won't be just losing sales to China.

[Peter G]

This is what happens when the US dollar gets relatively strong. Great time for Americans to go on vacation abroad. Bad time for foreigners to spend money in the US. On the super dooper plus side, many thanks for quick action in France by those excellent young Americans. If it weren't for the exchange rates they probably wouldn't have been there that asshole might have gotten his AK-47 to work before anyone stopped him.

[Bob]

True if the Chinese situation is worse than was already expected. I just checked and the Dow is only down 150 now. It's too early for a dead cat bounce, so it's likely the drop had more to do with automatic trades and coked-up traders than anything else, but stay tuned.

[Bob]

I'm glad the French have something to judge the US by besides Bush II at this point. It was down to liking nothing but our jazz for a while. Keep in mind that before President Obama's stimulus package kicked in the Canadian dollar was worth more than ours. If we make the mistake of electing another Republican it will more than likely go that way again.