On Thur, 2/27/2020, the stock market fell 1191 points, bringing the total decline in the DOW to over 3000 points in one week.
There are several large, looming problems with this. The decline itself is not as much of an issue as one may imagine.
The biggest problem with the decline is how people are likely to react to it. If the market declines by 1000 points, people take notice. Yet the market has the capacity to regain that much in a day or two. When the market declines 2000 points in a week, people get nervous. When the market declines 3000 points in one week, people take action. This is where things get scary.
Beyond a 3000 point drop, if the market falls 4000 points, people panic. However, this is what is most likely to occur because of the actions people began taking at the 3000 point mark. Once panic sets in, even small stockholders will begin liquidating their investments out of fear that they will lose everything. This is the point where early withdrawal penalty means very little with retirement accounts.
Once investors start selling off their holdings to move them into something safer, that process will accelerate.
The other problem is that this truly reveals how tenuous the stock market and the economy itself truly has been all along. For over a year the media has been stating how strong the economy is, while those who pay attention have know just how much of a farce that statement has been all along. This strips away the illusion and shows the truth for all to see.
Another major issue is that this has happened while the Fed has been bailing out the Repo Market and expanding the balance sheet. It is simply not even possible for the Fed to create enough new money to counter this decline without devaluing the dollar catastrophically and buying stocks directly.
Congress will be unable to take any real action to fend this off because of the existing $23 trillion debt and massive deficit. Even if they took any action, who would they bail out? This decline is too widely spread to focus on a few banks or limited industries, unlike 2009. The 2009 bailout of banks and auto manufacturers never led to a real recovery and has led eventually to this inevitable decline.
There is no question that the people will not be bailed out, even though we are the source of the entire economy.
I fully expect the DOW to decline at least 1000 points on Fri, 2/28/2020. This is really bad because it is just before the weekend and the beginning of a new month. Historically consumer spending increases dramatically at the beginning of the month. This time it is entirely possible that increase will be significantly depressed as more people try and conserve what funds they have. Being tax season, consumer spending typically rises as consumers spend their tax refunds. That may not happen so much this year. For retailers that depend on that annual increase, it can cause definite further problems.
If that 1000+ point decline does not occur, I will be truly surprised.
On the up side of this, for those who want Trump voted from office, if this decline is severe enough to cause a recession or depression, this is what will help get rid of him. His followers have believed the hype about the economy, even as they sank deeper in debt or saw their jobs eliminated completely with no assistance forthcoming from this administration.
However, even with that it does not mean that the economy will recover, even after he departs office. I’ve said before that he is not fully responsible for what is coming but he has absolutely made it worse instead of better. Yet he has had significant assistance from the “resistance”.
When you look for someone to blame, do not point fingers at Russia or China or immigrants. The blame lies squarely on Wall Street and CONgress. This is a gaping fault line running through the middle of capitalism.