The past two weeks have been a roller coaster ride in hell for Wall Street investors. To understand the cause of the current "crashlet," let's look at who invests in the stock market, where those profits come from, and why they're disappearing.

First of all, investors are interested in very high rates of return. Most investors are upper-middle-class, over 40-years-old, deeply in debt, and they haven't saved enough for retirement by their own estimates. The government is gutting Medicare and Social Security, so investors are driven to make a 30 to 50% rate of return. They're horrified by the prospect of counting pennies, eating Kal Kan, and living in roach-infested dumps when they retire (like the rest of us will be).

The investments that make the highest, consistent profits are stocks of companies that sell lots of stuff every quarter, year after year. However, companies rely primarily on one thing to ensure high sales volume: public consumption. If average people don't have the money to buy products or services beyond basic necessities (or even the basic necessities themselves), sales lag, companies report losses, shareholders lose interest in stocks, stock prices plummet, etc. So it's very important to investors and companies to keep people buying things, consuming, shopping, and spending lots of money.

From the standpoint of an economist (an economic advisor to President Clinton, for example) it's of primary importance to "take care of your constituency"--i.e., major corporations--by boosting consumer spending. There are two main ways to do this and both are risky, destructive, and rely on stealing money out of poor people's pockets. First, you can increase workers' wages so they have more money to spend. The problem with this is that, when wages increase, companies have to pay their workers more, and their profits decrease. To keep their shareholders happy, companies have to raise the price of their products or services, which increases inflation (the cost of living). During periods of high inflation, people spend less money on luxury goods and try to save more, which perpetuates the problem (this is called an "inflationary cycle" or "inflationary spiral").

The second way to increase consumer spending works fine in the short-term, but is a ticking time-bomb in the long-term. You can increase spending by loaning lots of money to a lot of people at high interest rates, so they can buy products and pay banks lots of interest at the same time (which allows banks to continue to loan more money, and so on). This is called "increasing the debt load" or "liberalizing the financial markets" or some other bullshit term. It's really backwards inflation or "deflation." As wages stagnate, people have to borrow more money to buy necessities. It's a house of cards resting on the backs of middle-class and poor people who use high-interest-rate credit cards, home-equity loans (i.e., second mortgages), and personal lines of credit to pay for basics. When too many people assume large debt-loads, all it takes is a critical mass of people who default on their debts to destroy the whole flimsy structure.

The recent stock market "crashlet" began in July, when too many people and businesses defaulted on loans in Thailand. The entire Thai banking industry was at risk. Banks were closed, the whole Thai finance ministry was fired, the Thai currency fell, and the prime minister was forced to retire. Within two months, South Korea, Malaysia, Indonesia, and The Philippines found themselves with similar problems. Hong Kong banks, which are heavily invested in all of these countries, began to sell off stocks, which triggered the panic and crashed the Hong Kong market within two days. Markets in Japan and Singapore nose-dived. It took a day or two for the effects to be felt here and in Europe, but no country's economy is isolated any more.

The IMF is already employing its standard strategy to "fix" the crisis: pour money (taxpayers' money) to the tune of $37 billion into failed banks to prop them up, while demaning that the governments of Thailand, Indonesia, Malaysia, and South Korea cut social services. This will exacerbate the problem for obvious reasons--it dips even deeper into the pockets of poor people everywhere.

Even rich, greedy investors who believe adamantly in endless, exponential growth admit that something's wrong. They're beginning to talk about increases in wages, imminent inflation, or a further stock market crash. When global recession set in, as it inevitably will, it will open up opportunities for people on the lowest rungs of the economic ladder to demand change...and maybe, just maybe, some of those changes will break the "boom/bust" cycle.

--Maria Tomchick