Effects of Bigtime Losses in Credit/Liquidity/Stock Markets

Let's see, now, effects of a financial disaster for the subprime borrowers are leaking through all the holes in our financial structure. What should we anticipate?

As quilt lady told us this morning, being just at the point of beginning her retirement is no time to see the stock markets tumbling, and investments losing value. And I join her in dreading to watch values of those little hoped-for big caches of moola turn into little dribbles that may just disappear instead. There goes the Greek Island cruise for now anyway. There's a tiny glint of hopeful effects IMHO, though. (Skip to the bottom sentence now if you can't wait.)

We all watch stocks tumble in fascination, and I hope no one bet the farm on those stocks. Other considerations were thoughtfully posted at BBC, so I am putting them here for you to consider.

Until recently, we have been living in a period of low global interest rates that have let consumers and companies borrow money cheaply.

That has driven demand for mortgages, let companies pay increasingly large sums for takeovers, and allowed consumers to spend freely.

And the results of this credit splurge are hard to ignore:

UK house prices have doubled in the past 10 years.

China's main stock index has quadrupled in value since the start of 2006.

The UK's FTSE 100 and US S&P 500 stock indexes are at levels not seen in almost seven years.

Commodity prices have been buoyed by strong global demand, pushing some such as copper to records.

Merger and acquisition activity has taken off, and private equity firms are now in control of some of the world's biggest brands.

But as the records have continued to tumble, concerns have kept on mounting. (Emphasis added.)

When credit crunches, the remains tumble out from those businesses that were borrowing from one entity to pay off what they borrowed from the other entity the month/period before. We are on the verge of seeing a lot of shaking.

Of course, the Fed just poured some more money into the growing hole ($19 BN today, $24 BN yesterday). That was a measure to keep from an emergency lowering of the key interest rate (federal funds rate) that is reflective of industry needs, which they chose last week not to budge. In real terms, the Fed is trying not to panic, because if they panic a lot of other financial outposts will also panic and that can be really, really, really nasty for values/money markets.

Now is a good time for those of us with liquidity, that is, cash on hand. Good time to buy houses, land, solid things. And a lot of construction firms are looking for work, you may find bargains on improvements. Also, the demand for rentals will be growing as repossessions ... okay, yes, I'm not half serious. I'm not sitting here waiting for a repossessed yacht to go on sale, not at all. I hate it that so many people were tempted, sometimes even scammed, into buying what they're losing now, with all their hard earned equity.

The individual tax base is taking a hit, too, and your infrastructure is not in line to get that big do-over it needed. But I see a bright prospect in view of lowered expectations. We just can't keep funding the war.

This looks like an ideal time to end the war. No one can believe that we can still afford that bad investment of lives and treasure. A financial emergency might be something we can live with, if it will bring the troops home and stop our idiotic adventure in world conquest.