Comparisons To 1929? Check This Out.

September 22, 2008 at 5:42 pm (Banking Crisis)

Talking heads here and there are debating how serious this financial mess is — some draw allusions to 1929, some say it’s a silly comparison, many say it’s irrelevant.  Here is something they won’t talk about.  This picture is a graph of the crash in 1929 that heralded the Great Depression:

When most people hear “crash,” they assume all the stocks became valueless, or they declined by 90%, or something similar.  Nope.  They only have to decline by 20% or so across the board to send the nation into a tailspin for a decade or more.  From the day the stocks declined there in pink, it took until 1954 before the stock market returned to its previous levels.  Now take a look at this chart from last week:

That dotted line is where we were at last Thursday, had the Federal Reserve not massively intervened and pumped in over $100 billion before the opening bell.  From this article in the New York Post.  We would have opened with the Dow at 8300 — a 22% decline. We would have had a 1929-style crash, no doubt about it.  None.  That’s how serious the situation is.  Intervention prevented that, but intervention cannot change the underlying bad fundamentals that give rise to this problem.  Interventions are not magic.  We cannot fix the system by a wave of the wand, or a hundred waves of the wand.  We are lucky, in a sense, to have time to prepare for the inevitable Deprssion without the shock of a crash, but make no mistake: we are definitely entering a Depression.  Prepare.

Today’s article of doom: default by the US government no longer unthinkable.


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