Ominous: "Once it becomes clear that...it's a systemic meltdown in the economy itself, that's when the gravity of the situation will sink in. And there will be no digging out from it."
The stock market has kill switches to stop trading after falls. The so salled 'fat finger' trades. I think I read hat the first halts trading at around 16% drop. Then the SEC tries opening again and again it would trip the failsafe. Three days of this and they could just close for weeks to months which I think is what Rickard's scenario means. After the first crash there'd be no buyers whilst everyone 'waited for the other shoe to drop'.
These are the market circuit breakers. There are "dynamic" circuit breakers to deal with sudden price fluctuations. In the Asia Pacific region the exchanges are pretty good at having automatic measures in place to deal with violent price fluctuations. Some are % based (e.g. the OSE has a 30 second suspension when there is a 0.8% deviation from the last price) while others have daily price limits. I believe the ASX has discretionary trading halts when market activity may lead to disorderly markets.
This was the RBA's point recently when they stated: "In thinking about the magnitude and nature of any sell off, an important question to think about is who will take the other side of the trade? How far do prices need to go before someone is willing to take the position?" http://www.rba.gov.au/speeches/2014/sp-ag-141014.html Eruaran illustrated the situation brilliantly here:
Where do people get these numbers from? 25 years???? What exactly is he basing that on? I think if America were to re-adopt the free market principles that it once held dear a recovery could be quite rapid. Whether that will happen or not is another question. But everything struggling along for 25 years and no-one figuring it out? Seems doubtful.
