Inflation, Investing and Everything
US stocks tumbled, pushing the S&P 500 to the steepest drop since 9/11, as Lehman Brothers bankruptcy and declining commodities increased speculation that credit-market losses and the economic slowdown will worsen. Stocks erased more than $600 billion in value as AIG sank 61% and Washington Mutual decreased 27%. AIG may need to raise $20 billion to ease a cash crunch brought on by the collapse of US mortgage markets. Bank of America retreated 21% after agreeing to purchase Merrill Lynch for $50 billion. Lehman Brothers was forced into bankruptcy and sank 94% to 21 cents after Barclays and Bank of America abandoned takeover talks. Citigroup declined 15% to $15.24.
The S&P 500 declined 59 points, or 4.7%, to 1,192.70, the lowest level since October 2005. The Dow Jones Industrial Average tumbled 504.48, or 4.4%, to 10,917.51. The S&P 500 has fallen 23% since an October record as bank losses from the first nationwide decline in US home values since the Great Depression reached $514.6 billion. Concern the US is heading for a recession pushed oil lower, prompting a drop in energy stocks, and sent General Electric down 8%.
- This is no longer just a stock market meltdown, or a commodities correction. This is a financial system meltdown. A wholesale meltdown of the financial system is about the only thing that can propel gold higher while everything else is in freefall. This is the situation we are in right now. If the US government still continues to be reluctant to turn on the liquidity taps, they can watch the financial system collapse around them. One would suppose that it would not be a very good policy for an election year. Already, speculation is building for a Fed rate cut, but it would take much more than that to avert a total system collapse.
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