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Financial Disaster?

March 13, 2008

It’s going to get much worse before it gets better. How long did we think we could go offering people 125% loans on homes, no interest for two years on furniture purchases, and zero percent financing on automobiles? Because of the Federal reserve, we went far longer than we should and now the Fed is trying to keep the party going by supplying more and more alcohol for the zombie party-goers.

Who Wants Cheaper Auto Insurance?

As a result inflation is heating up and gold just crossed $1,000 an ounce to make the point.

Meanwhile today, the dollar hit a 12-year low against the Japanese yen and also fell to another new low against the euro, which reached $1.56 for the first time. The US$ has fallen from $79.22 on Halloween of last year to $71.82 this morning. That a double digit percentage drop in 4+ months. So much for America’s triple A credit rating.

And oil prices, whose relentless ascent have fed inflation worries, continued to rise. The pain at the pump is getting worse and it’s actually critical for some segments of our society. People are beginning to cut back on buying “stuff”. That’s long overdue for sure. Consumers, battered by plunging home prices and a credit crunch, stayed away from the malls in February, pushing retail sales down by a larger-than-expected amount. It was another worrisome sign that the country could be falling into a recession.

The Commerce Department reported Thursday that retail sales fell by 0.6 percent last month, far worse than the small 0.2 percent increase that analysts had been expecting. The weakness was widespread with sales of autos, furniture and appliances all down.

Consumer spending is closely watched because it accounts for two-thirds of total economic activity. Many economists believe that the country will suffer a mild recession in the first half of this year as the economy is unable to withstand the blows from a prolonged slump in housing, record-high energy prices and a severe credit crisis brought on by soaring mortgage defaults.

The gross domestic product (GDP) will be negative for the first quarter of 1008. Sorry Ben Bernanke. :-(

Mild would be good! Mild may not be what we get though. The market has shown signs of weakness right out of the gates as the Dow stumbled big time in the first few trading days of 2008. And while the Dow went nuts on Tuesday (up 400+ points), today will be an entirely different story. Is 6,000 Dow an impossibility?

The Fed meets next Tuesday and a cut of 75 basis points might be what’s in store. Our economy is on the tipping point. It could crash regardless of what’s done. For however smart we think we are, we are still not in control, at least not to the degree that we think we are. And I beleive we’re going to find that out very soon now.

Written by Ernie · Filed Under Daily Commentary 

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4 Responses to “Financial Disaster?”

  1. Real Estate Prices on March 14th, 2008 2:23 am

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