Maybe it’s just me, but I am seeing a something really interesting in
the state of the global markets right now, and it is not what I
When the US government decided to bail out the banks with almost a
trillion dollars made of hope and change, the first thing I expected
was for the dollar to immediately decline in value. The second thing
was a small uptick in credit availability and stock prices, followed
by a steep crash.
What has happened so far seems to be that credit availability has
tightened considerably, but interest rates have not changed much,
yet. This is not to say that anyone with a sufficiently sincere
pumpkin patch can get a loan, but the loans that do go through are
still closing with decent terms, as far as I know.
The stock market has not crashed. It has declined almost 50 percent
since this time last year, but most of that decline was an
accomplished fact before the banking crisis became public knowledge.
Almost all of the losses incurred in the past six weeks has been due
to panic selling on Wall Street, since the actual values and profit
positions of the underlying companies have not changed noticeably. I
think we can expect further declines over the next month or so, and I
believe that what happens beyond November will depend on the results
of the next election more than anything else.
The most surprising thing that has happened in recent weeks is that
the US dollar has become stronger. Yes, I know that sounds
ridiculous, but the proof is in the price of gold, and the price of
the Euro in US dollars. If the dollar had devalued as I expected,
gold would be passing $1500 per ounce by now, but it has dropped
well below $700 per ounce instead. That means that the dollar can buy
more gold than before the “banking crisis,” and has therefore gained
in value. I am assured by many financial experts that the price of
gold is directly associated with the value of a currency. The fact
that one Euro peaked at around $1.80 last year, and has dropped to
about $1.25 now, also supports the rising strength of the dollar.
What all this suggests to me is that, panic aside, the US economy is
in pretty good shape to weather the current financial difficulties.
All things remaining equal, I would expect to see discretionary
spending reduced somewhat due to limited credit, but I also expect to
see stock market prices increasing again early next year due to the
end of panic and the continued profitability of American businesses.
I already saw one newspaper article proclaiming that housing sales
were at an all-time high last month. That alone is not quite a
promise of happy days being here again, but the news isn’t all bad,
For what it is worth,