Debt Bubble Burst - It has begun.

The fall yesterday is reminiscent of what I experienced in 1987 when the market dropped 23%. I was fully invested, including on margin. The difference now is that it bounced back 2/3s the same day. What was missing yesterday was the market being put on hold, for a breather. This mechanism was set up as a result of what happened in 1987. Look at yesterday as a big earthquake and now there will be unpredictable tremors.

The stock market is so complex now with computers controlling 70% of the trades. There is no one behind the wheel. It's a collective setup that once in motion seems unable to be contained. For those of us individual investors, we must discipline ourselves to act opposite of the crowd. To do this, we must know our emotional selves well, so we do not blindly join the wave of self-destruction. I believe that we should be knowledgeable of what we are investing in even if we are paying an 'expert' to do it for us.

Europe is dancing on a financial tightrope as evidenced by the plunge of the euro, the equivalent of our dollar. What concerns me is the citizens of Greece are willing to force their country into bankruptcy rather than sacrifice anything for the benefit of the whole. I wonder if the government has the strength and determination to enforce the austerity programs that will be required to stem its debt burden.

Step back and look at the world. Notice all the uncertainty created by sudden changes, including those from Mother Nature; the latest being the worst flooding on record in Tennessee. We are in an energy of flux because we have reached critical mass and change will be the result of that. This is how the Universe works. We can act in fear or use this time to clean ourselves within so we can see the benefit of why it is necessary. It is heartening to see the grass roots efforts becoming more influential in directing our government; the latest being the reverberation from passing the Arizona illegal immigrant law. Change is all around us and we do have power in directing this energy as can be seen. We can change the federal government's priorities through our expression. As for Mother Nature, we can accept that she is a great teacher and does not discriminate against anyone. From her, we have the opportunity to learn what really is important. And it is not money and things.

The Finger in the Dike

Greece is unable to get its arms around its debt which is 195% of GDP, including government, public, and corporate. The government debt which is 115.1% of GDP has been downgraded to junk status, which adds impetus to the downward spiral. This country is part of a currency union and cannot print money like the U.S. can to inflate the currency. It can only default by not paying on its bonds, where the U.S. can default through inflation.

Portugal is now on the radar of public discussion with its debt 236% of GDP. Spain, Ireland, and Italy are behind them. As we look at these European countries, we can see that collectively they are in the same boat and the only way to stay afloat is for the creditors to accept a loss on their investments in these countries i.e. mainly the banks.

We saw what still continues from the aftermath of the housing bubble. Foreclosures are still healthy and prospering. Fannie and Freddie, the two government mortgage firms are now offering to help homeowners to do a 'short sale' or 'deed-in-lieu-of foreclosure.' In other words, by continuing to modify the mortgages and have these incur over a 50% default rate, the government has figured out that it's a waste of time and money to continue in this manner. Helping the homeowner in these other two ways saves money for the banks than going the foreclosure route.

Now being discussed, and I agree, the next bubble that is well underway is the 'government debt bubble.' We can see it easily by looking to Europe. Yet it is right under our nose here too. The ripple effect from Europe, once it gains momentum, will be a catalyst for us to act sooner rather than later in stopping our deficit spending. The longer we wait to act, the bigger the immediate impact on all of us.