The Stock Market Crash Of 2011?

How far does the stock market have to go down before we officially call it a crash?  The Dow is now down more than 2,000 points in just the last 14 trading days.  So can we now call this “The Stock Market Crash of 2011″?  Today the Dow was down 519 points.  Yesterday, an announcement by the Federal Reserve indicating that the Fed would keep interest rates near zero until mid-2013 helped the Dow surge more than 400 points, but all of those gains were wiped out today.  It turns out that the Federal Reserve was only able to stabilize the financial markets for a single day.  Fears about the European sovereign debt crisis and the crumbling U.S. economy continue to dominate the marketplace.  With each passing day, things are looking more and more like 2008 all over again.  So what is going to happen if “The Stock Market Crash of 2011″ pushes the U.S. economy into “The Recession of 2012″?

Just like in 2008, bank stocks are being hit the hardest.  That was true once again today.  Bank of America was down more than 10 percent, Citigroup was down more than 10 percent, Morgan Stanley was down more than 9 percent and JPMorgan Chase was down more than 5 percent.

Bank of America stock is down almost 50 percent so far this year.  Overall, the S&P financial sector is down more than 23 percent in 2011 so far.

How soon will it be before we start hearing of the need for more bailouts?  After all, the “too big to fail” banks are even bigger now than they were in 2008.

All of this panic is causing the price of gold to reach unprecedented heights.  Today, gold was over $1800 at one point.  If the current panic continues for an extended period of time, there is no telling how high the price of gold may go.

In the United States, much of the focus has been on the fact that the U.S. government has lost its AAA credit rating, but the truth is that the European sovereign debt crisis is probably the biggest cause of the instability in world financial markets right now.

The European Central Bank has decided to start purchasing Italian and Spanish debt, and there have been rumors that French debt could be hit with a downgrade.  Europe is a total financial basket case right now and unless dramatic action is taken things are going to get progressively worse.

Of course the U.S. is also certainly contributing greatly to this crisis.  The federal government is on track to have a budget deficit that is over a trillion dollars for the third year in a row.  The U.S national debt is a horrific nightmare, but our politicians keep putting off budget cuts.

The debt ceiling deal that was just reached basically does next to nothing to cut the budget before the next election.  Unless the “Super Congress” does something dramatic, the only “budget cuts” we will see before the 2012 election will be 25 billion dollars in “savings” from spending increases that will be cancelled.

The modest spending cuts scheduled to go into effect beginning in 2013 will probably never materialize.  Whenever the time comes to actually significantly cut the budget, our politicians always want to put it off for another time.

But in the end, debt is always going to have its day.  Our politicians can try to kick the can down the road all they want, but eventually a day of reckoning is going to come.

In fact, if the U.S. and Europe had not piled up so much debt, we would not be facing all of the problems we are dealing with now.

Things could have been so much different.

But here we are.

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