2008 "Market Meltdown"

Markets are sensitive to reality, and although individuals or great segments of the population may be temporarily immune to realistic inclination, the market will correct itself. It appears that the supply of money has outstripped the market’s capacity, and is being reflected in the drops in personal wages, durable goods, and prices in general. Although the money supply is artificially controlled, the faith in the money supply can only be influenced so far, and it appears that a tipping point has been reached where faith can heal no more.

In general it appears that #43's statement circa 2005 that we were “not in a recession” seems to have been timed correctly. The key indicator of new homes construction starts to slide in 2005, reflecting a market saturation. From personal experience, the prolonged focus on higher margin luxury home construction has raised profit expectations in the industry, and forced consumers to borrow against future income. Borrowing against the future is workable in the short term or in moderate long term sums, but there is a breakpoint where loans do not work, especially if the total future value of the loans potentially approaches the future potential total income of the borrower. It appears that the home construction slide in 2005 coincides with the increase in sub-prime loans, which more closely mirror the loan breakpoint scenario.

Considering the aggregate personal and government debt load and thin margin of operating liquidity, perhaps the solution the market has found is a breakdown in the cash flow system, vis-à-vis the collapse of loan availability. Without crunching the numbers, personal and government expeditures running at 80% of their pre-collapse level for about 2 years will alleviate the overall economy’s debt load (considering the national debt is about 40% of the overall budget), and thus help reset the clock for those oversold on the future. Those without excess debt will largely drive the market, and there will be a short flash of austerity, financial accountability, and conservation before the institution forgets what happened.

Just saying ...