You already posted this to another thread. Cross-posting is frowned-upon.

Anyway, the answer to your last comment is unknowable. Reasonable positions can be taken on both sides of that argument, just as reasonable positions can be taken on whether we’re heading into a low-inflation or high inflation environment. Prominent, respected economists have lined up on both sides of both questions.

My personal guess is that we’re heading into a long, deep, multi-year recession, but I’m not convinced it will be a 1930’s-style depression, although that cannot be ruled out.

I’m expecting inflation to initially be negligible but then to climb rapidly as the government tries to inflate its way out of the stubborn recession after it becomes clear it won’t lift on its own after a few quarters. Expect years of “stagflation”.

Baby-boomers who bought into the GOP’s snake-oil that we can privatize our retirements will find that they won’t have enough to retire on and will stay in the job market competing for scarce jobs, producing high unemployment and low wages.

Individuals purchase stocks for one reason; in anticipation that the price will rise with the result that this will increase the net worth of the investor owning the stock of the company. Stocks fundamentally rise or fall as the investors’ expectations of the profitability of the company rises or falls.

It is true that much of the decline in the stock market results from a “selling panic” caused by the many bank failures and the ineffectiveness of the federal government to solve the credit shortage. Eventually the investing public will understand that life will pretty much go on a usual as the weak banks fail and as the credit crisis indeed is resolved.

However, much of the market decline is a result of investors adjusting their expectations of the future income of the companies that they hold in their stock portfolios. With expected returns from investments lowered, it means that “values” of stock portfolios will also fall. A lower expectation of earnings is the harsh reality we are facing; it is not panic driven.

The new reality is that the average household lost trillions of dollars by the value of their homes falling precipitously and now the decline in the stock market. This then results in a significant drop in demand for the goods and services offered by companies that investors have purchased. These companies will earn less and therefore the value of their shares will decline.

The issue for bargain hunters is to determine what portion of the sell-off is due to panic and how much is due to fundamentals.

http://banicki.biz

House prices are STILL way too high, for one thing. Also, we’re about to see a meltdown in credit cards similar to what we just saw in mortgages. If you think there are a lot of subprime mortgage borrowers, wait till you see who they “qualified” for credit cards! Basically you need a pulse to get a credit card, and probably not even that if you have a co-signer who has a pulse. And while, granted, credit card balances are less than mortgage balances, there are a lot more OF them, and no collateral house to back them up.

Also this recession is worldwide, unlike most previous ones, so there won’t be any bright spots to carry us along while we straighten out our own mess.

The deepest part of the Great Depression was in 1933-1934, even though the stock market crashed in 1929. And we didn’t really exit the Depression until maybe 1939. This could be a long grind.