The "good news" around our house yesterday was that our plummeting 401k has lost less percentage than the Dow has. "See? We are way outperforming the market!"

I try to think of this like a discount, that's all--look honey, Wall Street is having a huge sale, let's go stock up for the winter! Not that we have any extra money to buy in with, but our regular contributions from the paycheck are continuing like clockwork.

What concerns me is that this is happening world wide. Are the forces that are causing the drop in US markets the same as the ones causing the drops in other countries? Or are the world markets playing follow my leader with the US?

That's globalization for ya. We are all connected. Hi UN. Many countries were doing the same things our banks were doing they are paying the same price. I think we were just the first to show the fractures.

Some countries invested heavily in US equities. For example, if I remember, Iceland has a $14 billion economy. But its banks were holding something like $210billion in assets. Those three banks needed a government takeover do to (in part or full) so many losses in their American investments.

Australia, according to what others have posted, has little invested in US equities. However, we know this American mess will create an American recession of unknown dimensions. Therefore China will need less coal. IOW China will use more domestic coal and less Australian coal. So how badly will the Australian coal industry (that had based future market predictions on full coal production) suffer?

Whereas uncertainty causes American equities to drop excessively, the same unknowns for Australian coal (and other Aussy commodities) create uncertainty in Australian export industries. These examples duplicated by the millions all over the world.

Eventually all markets will discover new valuations and how much damage exists in their markets. Previous financial market failures (according to history) take about four years for that economy to recover from.

This is not a time to worry. This is a time to learn so as to prosper from your losses AND to learn about this when it happens again typically every 30 years.

Thanks for the explanations, guys. I guess I'm sort of a nervous type. I live on a limited income, and I worry what this meltdown could mean for folks like me. For example, if we go into an inflaionary trend off all this, it could make my life difficult. Is inflation a possibility?

Inflation is inevitable. When government throws so much money into an economy, inflation occurs. But then we have already been seeing some inflation for many years now. Government numbers have not reported it when politicians (George Jr) only talk about core inflation. They ignore all energy and grocery store price increased.

Worse is the probability of stagflation. However you have time to adjust accordingly. For example, symptoms of this housing crisis and meltdown were noted in The Cellar back in Nov 2006. Economic changes take time. You have time to prepare for what may be only mild or may be severe.

I don't know anyone who doesn't.