As your canned food comment “I’m quite literally buying tins of food this weekend” suggests, psychology is running very negatively right now. If you’re buying canned food, 100 others are pulling their money out of the market.

I just sold my investment in the TIPS market because deflation is likely. So….

“Not only are banks now leery of lending to each other for much longer than overnight, they are also starting to refuse to honor letters of credit from other banks.”

I feel the policy response needs to be much more roust from the Europeans and the Americans in particular. This is the making of depression.

Yeah I picked that up this morning and emailed it to everyone I care about. I’m quite literally buying tins of food this weekend because I thinks there’s a low probability/high impact chance of a food shortage for a couple of weeks till the authorities mobilise.

My friends think I’m preparing for the zombie apocalypse but I think there’s real trouble brewing there, if only for a short period

Regarding asset re-pricing, it’s just people deciding cash is more valuable relative to stocks. Bad news if you hold stocks. Good news if you hold cash.

What worries me is the credit markets. That’s what can cause an economy to seize up. Equities has only ever been about numbers on a mutual fund statement

BTW, I notice now central banks are not making it clear that putting a floor under the stock market is their new mandate. Funny how they are so anti-cash. If you’d argued the toss a year ago people would’ve seriously argued “inflation-this” “price-stability that”

As to where things are headed, my post “Random musing: 25 Aug 2008 – confirmation bias gives a good synopsis. My bias has been to the downside and this fall is confirming that unfortunately.

Quite frankly, things are unraveling with such speed, I am astonished. The problem with that is that my downside bias is not shared by policy makers and they have been caught flat-footed. This has meant a lag in their reaction time making a negative psychological spiral that much more likely.

I would like to see whether the Lehman CDS auction today removes some of the negative psychology depressing the market.

Your concerns are consistent with the following observations/ideas:

Naomi Klein’s “The Shock Doctrine” as applied to the credit crunch,

Last week’s publication in Science showing that the loss of control leads to a belief in conspiracy theories and superstition,

AND

Historical parallels with the the ideas propagated in the wake of the Dutch tulip bubble: Many of the sources telling of the woes of tulip mania, such as the anti-speculative pamphlets which were later reported by Beckmann and Mackay, have been cited as evidence of the extent of the economic damage. These pamphlets, however, were not written by victims of a bubble, but were primarily religiously motivated. The upheaval was viewed as a perversion of the moral order—proof that “concentration on the earthly, rather than the heavenly flower could have dire consequences”

A month ago I suggested that WaMu might fail:

http://seekingalpha.com/article/94625-wamu-on-the-brink

And the reaction on Seeking Alpha to this post was over-the-top angry. It was a shoot-the-messenger kind of fury that comes from fear.

That is why I would like to avoid this type of carnage because fear drives people to unpredictable behavior, both citizens and leaders and this can have unpredictable and potentially violent results.

Witness the crash and the rise of Hitler as a case in point. The personal toll is going to be tragic. But, I also worry about the geopolitical consequences too.

Some are already blaming Obama. Are these really the swingiest of the swing voters?

The cause: excessive debt, credit, and leverage.

…facilitated by ingenious use of securitization to hide both the debts and, more importantly the risks, and keep them off balance sheets, but in reality it was just an elaborate horizon effect — given an intricate enough tangle of derivative products you can keep the most powerful supercomputer in the world busy for years working out all the hidden risks.