|The next time dollars will vanish...
||A A A
- By Bill Bonner
Gualfin, End of the Road, Argentina
The stock market paused to draw breath yesterday, with the Dow down only 27 points. Not a bad day. Not a good day either, for there was no bounce.
September 15, 2008 was a bad day on Wall Street. Lehman Bros. sought Chapter 11 bankruptcy protection. The Dow fell more than 500 points. Putnam Investments shut a $12.3 billion money market fund. Mizuho Trust and Banking cut its profit forecast by half. And NYSE halted trading in Constellation Energy after its stock dropped 57%.
But this was just the beginning, not the end.
--- Advertisement ---
An Easy Solution For A Big Problem...
The stock market has many examples of small caps that went on to become industry leaders.
Small caps are capable of making you Big Returns.
But there is a basic problem - finding good small companies with high potential is not easy.
Yes! Believe it or not, this is the biggest stumbling block when it comes to small companies, and that's why many investors prefer to stay away from small caps.
Not our subscribers though...
For the past 7 years, Equitymaster has guided a small group of people towards many high-potential small caps.
Small caps that have delivered returns like 177% in 2 years, 100% in 1 year 8 months, 217% in 3 years and 11 months, and more.
And now, YOU too can join this group and start benefiting from high-potential small caps.
Click here for full details...
The following Thursday...the Federal Reserve noticed an odd and alarming trend. Cash was disappearing. Outflows from money market accounts topped $550 billion in less than two hours. If that had continued...
Rep. Paul Kanjorski (11th congressional district of Pennsylvania) recalled:
The Treasury opened up its window to help, and pumped in $105-billion into the system, and quickly realized it could not stem the tide. We were having an electronic run on the banks. They decided to close down the operation, to close down the money accounts. ... If they had not done that, in their estimation, by 2 PM that afternoon $5.5-trillion would have been withdrawn and would have collapsed the U.S. economy and within 24 hours the world economy would have collapsed. We talked at that time about what would have happened. It would have been the end of our economic and our political system as we know it.
Neel Kashari, Interim Assistant Secretary to the Treasury, elaborated. He was talking about what didn't happen in '08-'09:
People who say we would have gone back to the 16th century were being optimistic.
"Literally your ATM wouldn't work. You type in your code and no money comes out. You get your paycheck, you can't cash it."
"The money was so tight that ATMs could have stopped working. It could have really gotten out of control..." added Lawrence G. McDonald, the co-author of the New York Times best-seller "A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman."
Few people understood what was happening: for the first time in history, a credit-based financial system was melting down. And those who understood it least were those in control of it.
(June 10, 2008) "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."
While Mr. Bernanke had no idea what was going on, some people did. One of them knew what to do, too:
"On Friday night, I called my wife and I said, 'Brooke, I am not coming home this weekend. I will call you on Monday. Tonight, I want you to go to the ATM machine, and I want you to draw out everything it will let you take. And I want you to go tomorrow, and I want you to go Sunday."
Mr. Richard Burr, US Senator from North Carolina, was convinced, he said, " that if you put a plastic card in an ATM machine the last thing you were going to get was cash."
Every financial system must encounter stress from time to time. The shock of '08-'09 was severe. But it never got to the level that Senator Burr feared.
Next time, we predict, it will. And then some. Because the tensions, imbalances, distortions and malinvestments that caused the correction of '08-'09 are much worse today than they were then. And the same clueless people are still in charge.
Stocks are more overpriced. There are bubbles in auto loans, student loans, biotechs and corporate bonds. And, there is more $8 trillion more in public and private debt in the US alone.
What's more, the Fed has already played the ace up its sleeve. It lowered rates to zero 6 years ago. And there they have stayed, doing nothing but further enriching the rich and further distorting an already grotesque and unnatural economy.
Next time the crisis comes, millions of people are likely to take the advice Senator Burr gave to his wife. They will rush to the ATM machines. And dollars - old fashioned, paper greenbacks - will vanish.
More to come...
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.
||Get The Daily Reckoning directly
in your mail box.
|Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working
August 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
|Trump Takes a Beating
August 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
|Which Gods Will Bring Down the US Empire?
August 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?
|Will They Haul Off Trump's Statue, Too?
August 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...