The Chinese sell-off seems to be spreading as US markets are experiencing profit taking bringing them below 1000 on the S&P 500 and leaving them oversold by many short term technical indicators.
What’s next?
My forecast isn’t too optimistic given the convergence of many different economic complications. I think that the risk remains very high that the market faces a significant correction given the irrationally optimistic rally we’ve experienced since the March apocalyptic head-fake.
Real world valuations simply don’t match stock prices and future profits are not going to come from anything more than further cost cutting. The picture being painted is anything but rosy.
Add to that a looming commercial real estate crisis, a bankrupt government and an FDIC that’s running out of insurance for depositors as banks continue to fail.
What happens when the next shoe drops?
Consider this: We’ve had a jobless recovery and everyone is optimistic. People feel like the worst is behind us, yet unemployment remains remarkably high. Then, the unexpected. Another economic meltdown.
If we were to go in to a downward economic cycle and reenter recession here after this artificially orchestrated ‘recovery’ the devastation would be deep and pronounced. Unemployment could rise exponentially as commercial real estate implodes, forcing malls to shutter and tens of millions of Americans out of work.
The materialism capital of the world
The United States has 600% more malls than any other country on Earth. Our economy is very consumer driven, yet right now the consumer is so leveraged in to debt they can’t afford to spend much. This is a broken and unsustainable model that will continue to eat away at our economic core until we see a more sustainable (and modest) implementation of capitalism.
Because the economy is consumer driven and because consumers can not spend we have a conundrum that bank bail outs can not solve. How do you engender an era of confident spending by selling off the average consumer’s future with gigantic amounts of debt that in no way benefits the debt holder? Certainly there has to be a better way.
The real crisis is coming
It is my opinion that we have yet to experience the true crisis that will manifest out of the past few decades of reckless unimaginable greed. No amount of reflationary policy can adequately combat the implosion of credit capital that has drained liquidity and forcibly deleveraged the global financial system.
The only success the government can claim here is that they have temporarily staved off this crisis by sacrificing the fiscal solvency of the Treasury. Ultimately the United States is the most indebted country across its respective private citizens, corporations and governments. This national debt costs the country $500,000,000 per day in interest.
The national debt is largely owned by foreign countries like China, Japan, UK, Russia, Saudi Arabia and others. Does this sound like a sustainable plan for the future of our country? Can we truly continue to borrow our way out of crises we’ve created by ignoring our looming debt and anything resembling fiscal responsibility?
