Monday, September 15, 2008

Markets Down Hard

DJIA down 4.42%
NASDAQ down 3.60%
S&P 500 down 4.71%
Russell 2000 down 4.23%

These numbers matter. The systemic problems that are being blamed on the downdraft matter. The descent of social mood into anger matters most of all. The world is changing before our eyes - today was a key marker.

How will this affect Main Street America?

Let's pose a series of questions and let you answer it yourself.

What does a rapid decline in asset prices do to the balance sheet of the local and national banks? What happens to you if you can't borrow money?

When banks have to repair their balance sheets, one avenue is via credit card fees and charges. Do your credit cards allow the issuer (the bank) to raise the interest rate whenever they want, for whatever reason? Might want to check that if you carry a balance.

We've discussed it before here, but as a refresher, go over the theory of fractional reserve banking - the system we have in place in most of the world today - and ask yourself what happens when the reserves of banks begins to go down in value?

If the following industries continue to slow down, how quickly will it affect retail spending and local tax collection in your area: Mortgage Lending, House Construction, Commercial Real Estate Construction, Stock Brokerage Services, Auto Sales.

At the end of the day, the key question is - what happens to your and your community when people can't borrow money anymore? Or lending is reduced to say levels not seen since 1982?

Don't panic. The time is now for clear thinking.

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