The Dow-Jones Industrial average (Dow) was valued at 13,021 on May 6, 2008. On December 31 the value was 8,149 (up from 7552 on November 20th). This is a loss of value of 38% (42%). Today the value of the Dow is 6,547, a loss of 50%. By 1933 the Dow had lost 89% of its 1929 pre-crash value. That loss was created/sustained over three years. The current 50% loss, (which is expected to go below 5,000 or down 62% this year or early 2010), has taken place in 9 months, most of the loss in the past 4.5 months. Analysts know that it unlikely that a 90% loss in the Dow will occur in the U.S., but the problem is that other economies may flat-line completely, throwing the more highly integrated transnational economies into additional turmoil. The market rallied on Tuesday, but you should understand that the good news that prompted this exuberance was the report from crippled CitiCorp that their "operations" turned a modest profit the last two months. Good for them! Have they figured out how to deal with their toxic assets? No. The Citi-pi˝ata is full of razorblades and rusty nails, and that a few M&Ms spilled out is clearly the cause for celebration but not optimism. If you are an investor, you probably subscribe to one or more investment advice services. The advice you are getting now ... except from the vividly inept "reporters" at CNBC ... is to buy gold now, to scorn the Euro, to buy stock in industries and companies that typically do well in very hard times (like Dollar General Stores and the sources of "little luxuries" to which people retreat when cruises to the Greek Isles are out of the question). The commentary that comes from the investment advisers that I have access to is dire, indeed. You would hardly know they are talking about the same planet that President Obama's vocal advisers are talking about. This raises a very serious question. Is the new administration just more of the same, or are they really trying to find a way to let us all know what surely they must know by now? The answer is this: politics is the art/craft/science of the the possible. When politics holds illusions it is called ideology. When politicians lie, they already know the extent of the impossible, and you can be sure that it is unpalatable. Economics, on the other hand, is an inexact but dismal social science, which is to say that anything you do to affect economics in real world is like stirring pudding from inside the bowl. Barack Obama knows full well what a mess we are in and what an inept response to the situation the Bush administration mounted. They also know that the Republican public (say, 45% of America) does not quite believe what is happening. These people are in paradigm shock and will not recover soon. In this way the realm of the possible is severely constricted and the only way to change this is through pain. Meanwhile, of course, the rest of us have understood that deregulation is suicide. There is a TV ad out these days where a thirty-something woman says she is too afraid to really look at her investment situation. This is something of an exaggeration, but grazes the truth close enough to be instructive. Most people have looked at their nest eggs and found the experience extremely upsetting. They are now, in the aftermath, unwilling to look very often and have decided that at 35 they have at least 30 years to recover from whatever situation they are in. So, they have decided to weather whatever it is that is happening. Obviously, the older the investor the less time there is to recover and the greater the panic. The problem with the decisions being made is that they are based on the probably false notion that this is a U-shaped recession and that recovery will take place and they will only lose a few years out of their nest-egg-building regime. If this an L-shaped depression we are entering, though, all bets are off on how long it will take to recover, and moreover, what emerges on the far side is likely to be as different as 1950 was from 1928. Dwelling on the facts of the situation rather than on prognostications or deriding the truth-tellers is not counter-productive. You have to know how sick you are before you know what cures and therapies to apply. The point is that people have the right to know what the circumstances of their decision making really are. JB
This graph shows unemployment rate in percentages of the workforce. A better understanding of the human suffering and the political instability created by massive unemployment is to to know the numbers of those unemployed. If this chart were in numbers and not percentages the jagged line would incline dramatically upward to the right.