Meltdown--But Why?

By Ben Stein

"What the heck is happening?" That keeps racing through my head as the world's markets crash and a staggering wave of fear races through the world's financial centers.

Why are we having this meltdown? Why right now?

The real economy is not doing great, but corporate profits are extremely strong. The nation's large corporations are loaded with liquidity. The luxury retail sector is powerful. Autos are excellent. The agricultural sector is stupendously strong. High tech and biotech are doing well, sometimes amazingly well.

The stock market is a barometer of corporate profits and somehow the barometer is now telling us corporate profits will fall far and fast -- yet the evidence for this is thus far faint. It may come, but markets, as the old saw goes, forecast ten out of every five recessions.

For pitiful, grizzled old me, when I see markets falling this fast, I smell "speculator." Economists and statisticians are not trading stocks. TRADERS are trading stocks and if they see a way to make money by selling or using options or instruments that are like a sale, they will make money that way. It has very little to do with the larger economy.

I offer as the world prize exhibit the Crash of '87. It was the biggest Crash ever in history before or since, was done entirely to make money off a trade between the cash and the futures of stocks prompted automatically by something laughably called "portfolio insurance." Within a few months, the market completely recovered and there was no recession.

That is, falls are often -- not always -- an epiphenomenon, if I have the right word, made by a small group of willful men within the markets and not connected with the larger economies.

Yes, Italy has problems. Yes, the USA has problems. Yes, our debt was just downgraded and rightly so since the federal debt is just a massive Ponzi where the earlier investors are paid by the later investors. But the Ponzi can go on a long time and Italy can be bailed out by the ECB -- and in the meantime corporate profits are brisk.

To my old and possibly failing eyes, we seem to be in a panic manufactured by speculators, fed by the media, poisoning the hopes and plans of the whole world.

The leading clue is the stupefying rise of gold, which simply bears no relation to any traditional metric. Gold buying panics are sometimes -- not always -- signs of a manufactured panic, just as any buying panic in a commodity is.

But the most astonishing part of the whole dreary tableau is the utter irrelevance of President Obama. He cannot do anything about anything. He might as well be on the moon. The gunslingers on Wall Street and in London and Hong Kong and Tokyo have made him absolutely outer planetary. It's almost sad. He's flailing his arms around, and no one is listening. He might as well be President of The Off World Colonies. "Yes, we can....we can be utterly irrelevant."

These are strange times. Up here at Lake Pendoreille though, it's paradise. The moon shines on the water. The osprey slide through the air, and the freight trains shake the walls. Far from Broad Street, all is well.