Staring into the Abyss
The Collapse Of The Modern Day Banking System
By Mike Whitney | InformationClearingHouse“In past financial crises... the Fed has been able to wave its magic wand and make market turmoil disappear. But this time the magic isn’t working. Why not? Because the problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency.” Paul Krugman
Stocks fell sharply last week on news of accelerating inflation which will limit the Federal Reserves ability to continue cutting interest rates. On Tuesday the Dow Jones Industrials tumbled 294 points following the Fed's announcement of a quarter point cut to the Fed Funds rate. On Friday, the Dow dipped another 178 points when government figures showed consumer prices had risen 0.8% last month after a 0.3% gain in October. The stock market is now lurching downward into a “primary bear market”. There has been a steady deterioration in retail sales, commercial real estate, and the transports. The financial industry is going through a major retrenchment losing more than 25% in aggregate capitalization since July. The real estate market is collapsing. California Gov. Arnold Schwarzenegger announced on Friday that he will declare a "fiscal emergency" in January and ask for more power to deal with the $14 billion budget shortfall from the meltdown in subprime lending. Economists are beginning to publicly acknowledge what many market analysts have suspected for months; the nation's economy is going into a tailspin which will inevitably end in a hard landing.
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