Dark Day on Wall Street
It started in 9% drop in the Chinese stock market and rippled through global financial markets. The Dow ended the day down 416 or 3.29%.
A 9 percent slide in Chinese stocks, which came a day after investors sent Shanghai’s benchmark index to a record high close, set the tone for U.S. trading. The Dow began the day falling sharply, and the decline accelerated throughout the course of the session before stocks took a huge plunge in late afternoon as computer-driven sell programs kicked in.
The Dow fell 546.02, or 4.3 percent, to 12,086.06 before recovering some ground in the last hour of trading to close down 415.86, or 3.29 percent, at 12,216.40, according to preliminary calculations.
It was the worst decline since September, 2001, and wiped out three months of gains in one day.
Ironically, Robert Kiyosaki, in a column that I’m sure was written before today’s decline, explains why all booms eventually go bust. He also discusses what happens in a deflationary economy.
If such deflation happens, cash will become king. There will be half-price sales on BMWs, expensive restaurants will close, and people will be out of work. And anybody who caters to people with dumb money will be in trouble. As I said before, deflation is much worse than inflation.
Deflation is great if you’ve got cash because every day your cash has more buying power. It’s bad if you’re in debt up to your eyeballs.
In an inflationary economy, every day your cash has less buying power because the government keeps putting more money into the system.
Inflation is the result of the government manipulating the money supply. Deflation happens when the manipulation doesn’t work any more and reality catches up with the fantasy.
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