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Well it appears that the $700 billion dollar bailout was not enough to convince investors that better times were on the way. A recent report on jobs helped to lead the market down as jobless claims went to a seven year high. In addition, there were fears that the House will once again strike the bailout plan down.
Credit also remained very tight, and Treasury prices continued to jump in price as more investors looked to lessen their appetite for risk. The Dow Jones Industrial Average dropped about 348 points. The S&P 500, for it’s part, fell about 4%.
The continuing concern is that even if the House manages to pass the bailout will it have enough of an in impact to free up an increasingly choked off credit market. A lot of experts have thrown their weight behind the bailout, including master investor Warren Buffett. If it fails to pass, he joked morbidly, “I may go back to delivering papers.” That helps to explain the gravity of our economic situation.
Let’s face it, not very many people are happy about the government bailout. The fat cats on Wall Street are not happy about being made to look completely incompetent and caught so horribly flat footed that many firms that withstood the Great Depression are now bankrupt. Washington isn’t happy that they have to shell out $700 billion to firms that obviously messed up so badly that they’re threatening to unhinge the economy. Taxpayers aren’t happy that their money is in all likelyhood going down the drain.
The question that remains though is whether we face the next Great Depression if the government doesn’t do anything. Everyone expects a government reaction of some kind, but what it will be exactly? No one really knows. Ron Paul recently weighed in with his own view, however:
You have to liquidate those mistakes. Those mistakes were made due to monetary policy. So you have to allow the market to adjust prices downward. And that’s what we’re not allowing to do.
If there are too many houses and the prices are too high, the sooner we get the prices down to the market level, as soon as we quit trying to encourage more housing — this is what we’re doing. They’re trying to stimulate houses and keep prices high. It’s exactly opposite of what we should do.
So, we should get out of the way and not buy up bad debt. There’s illiquid assets, but most of those are probably worthless. They’re mostly derivatives. And we’re sticking those with the taxpayer. So we have to recognize that the liquidation of debt is crucial. And if we did that, we would have tough times, there’s no doubt about it, for a year. But if we keep propping a system up that’s not viable, we’re going to have a problem for decades, just like we did in the Depression. That’s what we’re on the verge of doing.
Feel free to drop any thoughts or comments of your own, I’m always open to feed back!
As a young investor, I try to take advantage of the time I have before retirement. I work on a solid asset allocation, investing aggressively as I’m young but looking to tame my exposure to risk as I age. Many tend to point to the $1 million dollar mark as the point where they would be comfortable retiring. To reach that, there’s a certain age that you can max out your 401k contributions for one year, max out your IRA that year and just meet the annual market’s return of 10% (historically speaking) and you’ll get there by the time you retire at 65.
What age is that? Twenty six. If you take $20,500 now (if you’re 26 or younger) and let 41 years of compounding do it’s work, you’ll end up with $1 million at retirement time. Of course you have to take into account inflation, but that’s still a huge gain! You’d get your retirement out of the way and you’d be ready to focus on other financial goals like buying a house and discretionary spending. You’d be free to do what you want with your money knowing that in all likelyhood you’d be ready for retirement at the end of your career road.
Of course it’s important to note that most people at the age of twenty six have enough to worry about. Between student loans, rent, insurance and other expenses it’s unlikely they would hit $20,500 in savings in one single year, but the point is made. Time is the close ally of any young investor.