patrick.net

smaulgld says

What will you do if the stock market crashes?

Buy.

"The way to make money is to buy when blood is running in the streets."
-John D. Rockefeller (My Grandfather)

indigenous says

The 4% number seems a bit optimistic, especially when military spending
drops? and Yellin quits the QEs? which is creating the sugar high the economy is
currently on.

4% nominal. Less 2.5% increase in the annuity stream = 1.5% GDP growth (real) if added cost of entitlements = inflation.indigenous says

It also seem a bit optimistic to think that the GDP would not change if you
raise the taxes by 50% in order to balance the budget?

Current taxes as a % of GDP are 16.7%. We would need to add 5.2% to 21.9% of GDP.

Has never been that high, though was 20.6% as recently as 2000.

I don't think that taxes at that level affect growth.

indigenous says

I notice that you do not mention that there is the possibility of balancing the
budget by cutting spending.

Was just an example - to fill the $820 billion hole we need to add revenues. Of course cutting spending $820 billion would do the same. Cutting spending WILL hurt the economy if private investment does not fill in the gap. In a low tax environment, the incentive is to take profits, not invest. If tax rates were significantly higher - there would be more investment.

Eliminate fixed employment costs (like health care) and transfer them to marginal costs (like taxing profits to pay for NHC) and employment will improve. Talk about expanding the base.

control point says

Less 2.5% increase in the annuity stream = 1.5% GDP growth

I don't understand that statement, please explain?

control point says

Current taxes as a % of GDP are 16.7%. We would need to add 5.2% to 21.9% of GDP.

I was simply looking at the US has revenue of 1.5 t and a 1/3 more is borrowed. So to cover the borrowing we would have to increase the revenue by 50%. Real growth comes from the private sector taking that much out the market place would have an affect.

control point says

Cutting spending WILL hurt the economy if private investment does not fill in the gap.

That is not true, in fact just the opposite is true, an example would be under the Coolidge administration.

control point says

In a low tax environment, the incentive is to take profits, not invest. If tax rates were significantly higher - there would be more investment.

The organic way to achieve this is though higher interest rates, the advantage would be that we would eliminate the inorganic mal investment cause by government.

control point says

Eliminate fixed employment costs (like health care) and transfer them to marginal costs (like taxing profits to pay for NHC) and employment will improve. Talk about expanding the base.

Why does government need to be involved in this at all? Doing it your way will simply send the investment dollar abroad and will emaciate the employment further (if that is possible)

I think the main thing is that you are stuck on the notion of the 1.5 multiplier (it does not exist) from government spending.

The thing is that for the economy to really recover the market place has to clear, all the malinvestments have to die. Only then can real value be created and real growth realized from real investment.

This is something the cronies and Keynesians fight to the death which is why we are a nation of zombies.

indigenous says

I don't understand that statement, please explain?

Revenue is a flat % of GDP if tax rates remain constant. I said the annuity stream (ie the medicare, medicaid, and SS payments) increase 2.5%. That could be inflation beut we all know health care costs have outpaced inflation.

Taxes are taken from Nominal GDP. Nominal GDP minus inflation is Real GDP.

indigenous says

I was simply looking at the US has revenue of 1.5 t and a 1/3 more is borrowed.

Well your estimate is off because you were simplifying. Deficit is not 1/3 of revenues. 5.2/16.7 = 31% increase in tax rates.

indigenous says

That is not true, in fact just the opposite is true, an example would be
under the Coolidge administration.

Did you verify this or is it just another thing you read on some right wing blog somewhere. Ah, this is the newest Heritage Foundation meme.

OK, Coolidge lowered goverment spending from 3.8% of GDP to 3.1% of GDP from 1923 to 1929. And real GDP grew 3.4% per year. Meanwhile, private credit as a percentage of GDP rose from 2.4% to 4.1%.

So you have .7% coming out but private investment putting 1.7% back in. As I said, unless private investment fills the gap lowering government spending will hurt the economy. How did that expansion of private credit and lowering of tax rates work out, by the way?

indigenous says

The organic way to achieve this is though higher interest rates, the
advantage would be that we would eliminate the inorganic mal investment cause by
government.

So you want 1923-1929 all over again. Expansion of credit (done), lower goverment spending (in progress), expand interest rates (next). II'll pass on 1931, thank you.

indigenous says

Doing it your way will simply send the investment dollar abroad and will
emaciate the employment further (if that is possible)

Not if you eliminate intellectual property rights on products not manufaactured 51% in the US. Wage arbitrage only exists because of government protection. You want to eliminate cronyism? Right there.

control point says

indigenous says

I was simply looking at the US has revenue of 1.5 t and a 1/3 more is borrowed.

Well your estimate is off because you were simplifying. Deficit is not 1/3 of revenues. 5.2/16.7 = 31% increase in tax rates.

So my statement is irrelevant because it is off by 2%?

control point says

ndigenous says

That is not true, in fact just the opposite is true, an example would be

under the Coolidge administration.

Did you verify this or is it just another thing you read on some right wing blog somewhere. Ah, this is the newest Heritage Foundation meme.

OK, Coolidge lowered goverment spending from 3.8% of GDP to 3.1% of GDP from 1923 to 1929. And real GDP grew 3.4% per year. Meanwhile, private credit as a percentage of GDP rose from 2.4% to 4.1%.

So you have .7% coming out but private investment putting 1.7% back in. As I said, unless private investment fills the gap lowering government spending will hurt the economy.

Being that it came from the private sector it was real investment which created real growth. Not a small point.

control point says

indigenous says

The organic way to achieve this is though higher interest rates, the

advantage would be that we would eliminate the inorganic mal investment cause by

government.

So you want 1923-1929 all over again. Expansion of credit (done), lower goverment spending (in progress), expand interest rates (next). II'll pass on 1931, thank you.

You forgot to point out that both now and then the big bust was created by a big bubble though excessive credit being allowed by the banks and the government. If Greenspan had not created this situation the correction would have been much smaller.

I have also read that government policies undervalued the dollar predisposing this loose credit situation. This is what China has done as well which also indicates their future.

control point says

Not if you eliminate intellectual property rights on products not manufaactured 51% in the US. Wage arbitrage only exists because of government protection. You want to eliminate cronyism? Right there.

Fine by me but notice this again is created by government policies meddling with real value.

Always seems the answer to government spending excess is some fancy new way to raise more "revenues"- taxes

indigenous says

Fine by me but notice this again is created by government policies meddling
with real value.

It is a reduction in government policies. Government protects IP rights.indigenous says

So my statement is irrelevant because it is off by 2%?

Its not irrelevant, but it is 20% off, not 2%.

smaulgld says

Always seeus ms the answer to government spending excess is some fancy new way to raise more "revenues"- taxes

Anything but confront the problem eyeball to eyeball. Especially when the only ones to make it more uncomfortable to face the constituents than the problem are the ignorant constituents.

But look at how hard it is to gain any ground on this subject, this country is coming to an end....

control point says

indigenous says

Fine by me but notice this again is created by government policies meddling

with real value.

It is a reduction in government policies. Government protects IP rights.

Fine and lets throw in all patent rights as well, either way it is government meddling.

control point says

So my statement is irrelevant because it is off by 2%?

Its not irrelevant, but it is 20% off, not 2%.

Again I don't understand. Why not just use numbers instead of percentages?

smaulgld says

Always seems the answer to government spending excess is some fancy new way to raise more "revenues"- taxes

Who audits the government spending?

FunTime says

I can't figure out how people live in the Bay Area, own a house AND invest in
the stock market

It is definitely possible to invest while being a homeowner in bay area granted that someone buys within 4 annual incomes or less range.

Analyzer says

smaulgld says

Always seems the answer to government spending excess is some fancy new way to raise more "revenues"- taxes

Who audits the government spending?

It's not- it's audited by the voters who vote for their representative to get them more benefits that are administered in a less than efficient manner

Update

If the stock market corrects more than 20% will you:

invest in the stock market 15.63% (15 votes)

remain in cash 16.67% (16 votes)

buy gold or silver 47.92% (46 votes)

buy real estate 12.5% (12 votes)

buy treasury bonds 0% (0 votes)

buy foreign currencies 2.08% (2 votes)

buy crypto currencies like bitcoin or litecoin 5% (5 votes)

Total Votes: 96

Call it Crazy says

By looking at these results, if the market corrects 20%, the majority move to gold and silver?? Why???

Is there a guarantee gold and sliver will be rising to gain back these losses?? As of late, gold and silver ain't looking too good...

Two possible reasons
-if the stock market fails it may be met with another round of money printing to try to pump up the stock market which would be seen as a further debasement of the dollar
-the market crash may be in part due to the excess of QE and the attempted tapering of the program an lack of confidence in the fed and the dollar
in both cases having hard assets would be preferable than paper ones-real estate did well too in the survey

FWIW Mish and Stockman are saying cash.

Mish is saying that inflation is not on the horizon because of the credit market shrinking.

Another factor is the deflationary factors.

Call it Crazy says

I know that's been said as conventional wisdom, but the way the gold and silver market has been manipulated, I just wonder if it would still hold true....

I think when we get that correction and people lose their confidence, there will be bigger issues...

If there is a stock market crash and the fed loses control of the bond market- their ability to manipulate gold will also be gone. Keep in mind the wild card today is what does China do in the event of a stock collapse?
They have already indicated no more US treasuries. Cash is probably the best first move after any crash-but how long you hold it will determine your success, depending on what happens next

smaulgld says

depending on what happens next

gold/silver? foreign stocks?

indigenous says

FWIW Mish and Stockman are saying cash.

Mish is saying that inflation is not on the horizon because of the credit market shrinking.

Another factor is the deflationary factors.

I would think a wait and see approach in cash makes sense. It all depends on why the crash happens and what the Fed response is.

The only way there would be significant price inflation after a crash is if the Fed flooded the markets again- that in itself wouldn't cause inflation but if the markets reacted negatively and sold dollars and treasuries we would have inflation here as our dollar would be devalued which would harm us as our import prices would rise significantly

smaulgld says

The only way there would be significant price inflation after a crash is if the Fed flooded the markets again- that in itself wouldn't cause inflation but if the markets reacted negatively and sold dollars and treasuries we would have inflation here as our dollar would be devalued which would harm us as our import prices would rise significantly

Except the other main currencies are in worse shape on the other hand the experts are saying the real danger is in the currencies.

However it seems like the Yuan and the Peso are almost guaranteed to go up.

ride out the storm.

indigenous says

However it seems like the Yuan and the Peso are almost guaranteed to go up.

esp if china backs the YUAN with all the gold it has been buying...

smaulgld says

indigenous says

However it seems like the Yuan and the Peso are almost guaranteed to go up.

esp if china backs the YUAN with all the gold it has been buying...

China doesn't have the means to sustain a healthy economy. We must remember the only reason why China's economy is growing is because it's exploiting the system by lower their cost so that they can export all their goods. So if the stock market flops and the market goes down, China too will go down as it won't have any buyers to their exports.

But that's not all their political system and system of government isn't made for sustainability. It's communist all wealth is redistributed by the government and we all know governments can't determine what the mass of individuals (the market) want. Without the will for people to make the determination of prices or purchases they want/need you can't have an effective economy.

So with that said, even if China has all this gold what are they going to do with it? They won't give it to it's people. If the Yuan becomes the reserve currency then I am not sure how that's going to work in a communist government/economy that only worked through the exploitation of the world.

Edit: If the U.S. dollar falls then so does every other currency in the world. I am not sure what will happen, more than likely they'll probably just rename a new global currency. But if they do that I expect that system to fall faster than this one.

spydah_hh says

But that's not all their political system and system of government isn't made for sustainability. It's communist all wealth is redistributed by the government and we all know governments can't determine what the mass of individuals (the market) want. Without the will for people to make the determination of prices or purchases they want/need you can't have an effective economy.

They too have been trying to keep the party going by building empty cities. They are already revaluing their currency higher but they still have interest rates that are too low. To me the real determining factor will be that they do not have private property so what is the motivation of the citizen? Will they go to war to solve their financial problems?

indigenous says

spydah_hh says

But that's not all their political system and system of government isn't made for sustainability. It's communist all wealth is redistributed by the government and we all know governments can't determine what the mass of individuals (the market) want. Without the will for people to make the determination of prices or purchases they want/need you can't have an effective economy.

They too have been trying to keep the party going by building empty cities. They are already revaluing their currency higher but they still have interest rates that are too low. To me the real determining factor will be that they do not have private property so what is the motivation of the citizen? Will they go to war to solve their financial problems?

Right. Tell you the truth China is in no different shape than the U.S. Same with the rest of the world, as all currencies is pegged to the dollar anyway. Which means if the dollar falls so does the rest of all other currencies.

It depends on how the dollar falls. If it just collapses before a new monetary system is put in place, I think a war is likely. If they replace the dollar before it's collapse then I believe we'll see big depression globally a war may still come though as there will still be losers.

Touch myself inappropriately

The question needs to be raised again- as the market starts to crumble what will you do?

smaulgld says

The question needs to be raised again- as the market starts to crumble what will you do?

I currently am not in the stock market, don't have a 401K or any investments because I am of the belief that the average citizens does not have enough inside information to navigate the market successfully long enough to get out without losses to most of there principle investment. I look at the stock market like I look at going to Atlantic City or Vegas; you don't bring your life savings there to gamble and when using money there, it must be considered risk capital or money you can afford to lose. With that said, the market tops we've been seeing are caused by the excess of money in the system, QE and all of the government manipulation. When those manipulative forces disappear, the market will crash hard and prices will return to normal. Unfortunately, for most people "normal" could mean bankruptcy and/or destruction of their once great portfolio. There will be of course some winners who have great timing and walk away at the right moment but for most, there will be pain and suffering as they watch their dreams of retiring with wealth and luxury evaporate in quick fashion...

mfs.admin says

When those manipulative forces disappear, the market will crash hard and prices will return to normal. Unfortunately, for most people "normal" could mean bankruptcy and/or destruction of their once great portfolio. There will be of course some winners who have great timing and walk away at the right moment but for most, there will be pain and suffering as they watch their dreams of retiring with wealth and luxury evaporate in quick fashion...

The recovery has been based on the stock market rising and will end as it crashes. Thanks QE!

APOCALYPSEFUCKisShostikovitch says

Start shooting like everyone else.

The yams are planted.

and so it begins

smaulgld says

APOCALYPSEFUCKisShostikovitch says

Start shooting like everyone else.

The yams are planted.

and so it begins

http://www.youtube.com/embed/3qYbVQu7YAQ

APOCALYPSEFUCKisShostikovitch says

Start shooting like everyone else.

The yams are planted.

Screw Robert Duvall: Someday this war's gonna start!

AF, this note's for you:

take advantage of the buying opportunities that present themselves.

EastCoastBubbleBoy says

take advantage of the buying opportunities that present themselves.

if stocks crash due to lack of profits to justify their valuations and there is no QE will there be a buying opportunity?

Sbh says
Show me one that hasn't been so ( a buying opportunity)
--------
From the original post

:

We may be nearing the end of the Fed’s ability to pick up the pieces after a crash. Before 1987 stocks did not always rebound so quickly and there have been generational losses in the stock market. It wasn’t until 1955 that the Dow returned to its 1929 peak. In 1966 the Dow was 1,000 and in 1974 it was 616. In the 70′s stocks fell for so many years to the point where a Businessweek magazine cover proclaimed – The Death of Equities. The Dow did not return to its 1966 peak of 1000 until 1981.
http://smaulgld.com/what-happens-after-the-next-stock-market-crash-poll/

Stock markets in recent times have recovered quickly because of federal reserve intervention. The question is does the federal reserve have the ability to pick up the pieces this time when interest rates are already zero and they have already dumped more than $4 trillion into the market

Perhaps it is true the stock market "always" recovers but In the two examples I gave it took between 15-25 years.

Buying opportunity.

zzyzzx says

Buying opportunity.

Maybe not this time....

curious2 says

AF, this note's for you:

Steal your face right off your head

There might be a correction, but short term interest rates are too low for a stock market crash.

bullshitmagnet says

There might be a correction, but short term interest rates are too low for a stock market crash.

And too low to revive a crash if it did happen