History Rhymes: Remember 2008


The incessant pumping by CNBC claiming “Rise Above” as a mantra along with other foolishness reminds me of what happened in 2008, and prompts me to issue a stern caution to anyone in the markets — it can happen again.

Let’s remember 2008, shall we?

The original TARP vote failed and the DOW plunged ~770 points.  That much “everyone” knows.

What is not talked about is that just a couple of days later it was passed, as Congress “interpreted” the collapse in the market as a demand to pass the bill, helped along by Hank Paulson, CNBC and everyone else in the “punditry.”  The Senate passed the bill on October 1st overnight, with the House following on the 3rd.

But the market did not want TARP passed.  It wanted an actual solution to the problem, and TARP was not that solution — it was a SCAM.

When TARP passed the DOW initiated a 3,000 point collapse over a bit more than a week’s time.

The market, in fact, was not done going down until the spring of 2009, when balance sheet fraud via mark-to-fantasy was officially made legal through the bludgeoning FASB took in a Congressional hearing room.

The issue today is that the actual problem is a roughly 8% intentional overstatement of economic demand in the form of GDP financed with government deficit spending.  A “half-ass solution” that makes a $100 billion annual dent in a $1,200 billion deficit will probably be looked at exactly as was TARP by the markets — that is, it will not be greeted with a big rally, but rather with a collapse as the market will (correctly) read this move by Congress as an unsuccessful can-kick and not a solution!

The government has backed itself into a corner over the last four years.  The time available to actually resolve the deficit spending problems along with forcing the insolvent into the open and reorganizing them has been squandered.

Now the market is once again stomping its feet.  But unlike the spring of 2009 there is no fraud game that can be played this time around.  Deficit spending and false economic demand is the problem and the only solution is to take it on.  The bad news is that where we had to take a roughly 10% adjustment in the amount of federal spending in 2000, and 20% in 2008, it is now approximately 40%.

There is nobody in Washington seriously talking about even 1/4 of that amount in spending reductions — even going off the “fiscal cliff” full-bore would only impose about 1/2 of the necessary correction between spending cuts and tax increases.

And let’s not forget that the sequester and tax increases, half of what would be required to simply stop the deficit spending this next year (not doing anything about the debt or acceleration in medical spending over time), is being called “Armageddon” by virtually everyone.

I expect the market will give the politicians a couple of weeks — maybe — before it starts to demand an actual answer.  And, as in 2008, I also expect that what Congress will cough up will not be an answer, but rather, as it was in 2008, another attempt to run a scam and will be far less than the sequester and tax increases would be.

We shall soon see if the market again pukes up 3,000 DOW points in response.

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