Global recession. Global depression?
I think that some basic context is very useful for our current situation. Today, the stock market (DJIA) dropped to 7997 points, the first time it has gone below 8000 in five years. In the 1929 stock market crash associated with the Great Depression, the stock market dropped around 48% from its highest by the time it hit its first bottom. For comparison, the stock market has dropped around 44% from its highest in 2007. Obviously it is very difficult to directly compare any two moments in history. However, as information to consider: after hitting the initial bottom and undergoing what is called a dead cat bounce (rebounding before crashing again), the stock market plunged in 1930 until it hit the final bottom in 1933 which saw an 89% loss.
The Great Depression is a hotly debated topic (what an insightful observation…). It is agreed by many “experts” that a large part of the cause was a massive banking crisis, not dissimilar to the current financial crisis. Furthermore, widespread deflation was a hallmark of the Depression. This is very simplistic, but as events have unfolded we have seen more and more similarities between what is happening today and what happened in 1929. Time will tell, especially the next year, as to how severe this is going to get.
It is from this starting point, a global economic recession of unknown proportions, which I begin this blog.
Filed under: Uncategorized , deflation, economy, Great Depression, stock market
