Now that the $700 billion bailout bill (with over $100 billion in add-ons attached) passed, only to see the markets respond by falling as much as 800 points yesterday to close below 10,000 for the first time in four years, the question is: What’s next? Everyone seems to think that it is the government’s responsibility to save the markets--that’s why we were passing this bill in the first place, right? So what are they going to do to restore order? You can bet they are going to try their hardest, as evidenced by the new measures they are enacting today, such as their plan to start buying short term debt and loan up to $900 billion to banks to help break the stalemate in the credit markets. Is this going to be enough, though? Probably not.
This downturn isn’t going away anytime soon and there is only so much the government can do. The next step for the government will be to start slashing interest rates, as Federal Reserve Chairman Ben Bernanke indicated today he might do by the end of the month, but who knows whether it will do any good. Australia has already shocked the world with their announcement of a full 1 percent cut to their rates, and now everyone is asking who is next.
So what are we to do? First off, you might want to heed Jim Cramer’s advice for once and get your money out of the stock market if you plan on needing it in the several years. The stock market is looking extremely risky right now and is definitely not the place to have your money if you are going to need it anytime soon. Cramer suggested a five-year time frame, but really, who knows? When Japan they had their economic crisis, their economy essentially remained at a standstill for more than 10 years, even with 0 percent interest rates. With precedents such as that, things are not looking good, that is for sure.