Friday, January 6, 2012

The Next Crash And Its Significance


In the October 17 post ("Danger Signs In The Stock Market, Financial System And Economy") I wrote the following:
Of further concern is whether, and when, the above-mentioned problems might reach a point at which another (financial system) crash occurs.  I am particularly concerned about the prospects of the next crash for a number of reasons, of which I will elaborate upon shortly.
"The next crash" is a topic of great importance.  In the October 13, 2010 post ("Comments On The Next Crash") I stated:
In the past I have commented that I view a future crash as certain.  Like that of 2008, such a crash would include not only equity markets but many others as well.
also:
...this next crash should be accorded great importance as it is likely to be severe, i.e. outsized by historical standards.
I also mentioned similar aspects in point #9 of "10 'Front and Center' Problem Areas That Pose a Threat to the Economy."  Also from point #9:
Have we, as a nation, taken appropriate steps to avoid further financial and economic "crashes?" I would argue we have not, unfortunately.
Perhaps the main reason this next crash should be of paramount importance is its capability to usher in severe economic weakness, i.e. what would widely be considered a Depression.  History has shown that stock market (and overall financial market crashes) often precede periods of pronounced economic weakness.

For many reasons, a Depression at this point would present inordinate challenges and hardships.

The economy needs a certain level of momentum, a level which it must maintain in order to function properly.  If it doesn't maintain such a level, many different ill-effects are felt, not only from a strict economic sense but from a societal one as well.  Some of these societal impacts were mentioned in a February 15 2010 post titled "America's Economic Future."

Due to the enormity and complexity of our economic problems, there is a high likelihood that we would go into what I have termed a "Super Depression."  As defined in my June 23, 2009 post ("The Concept Of A "Super Depression"), a Super Depression is :
...a severe Depression embedded with highly complex, difficult-to-solve problems.
While no one likes to contemplate an economic future rife with adversity, the resolution of our current economic problems should be feared and respected.  Absent proper economic policy, one shouldn't underestimate the downside of the resolution of our economic problems, especially given both apparent and unapparent evidence.
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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1281.06 as this post is written

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