Still falling

The Dow has not yet hit bottom

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The DOW is derived from the real market, which is jobs, houses, credit. If this is a credit crunch, the banks will reduce lending to negative growth, of course. Houses will not be built, sold or bought as before. Retail sales will fall. Forget about the DOW, just wait until the real economy hits the bottom (impossible to predict).Banks will fail, especially the secondary banks. Meanwhile in a few other countries, things are normal and unaffected by the USA? Russia, Brazil, Colombia, the oil exporters. I think that the rise in oil and food prices will have a salutary effect and teach people to be frugal, and look for alternatives.

M1 Garand

I have a question.
Now I've watched all of these videos on YouTube about how in the next couple of months we'll be in another great depression.
My question is, is the market really that bad?
I know jack**** about economics....I am concerned over this though.
Are we for lack of a better term doomed, if you will?


Amusis,the end of the era of living beyond one's means --as a country-- and the return towards a positive savings rate can only have a salutary effect on long-term prospects. I didn't notice the writer making that point.


Is it a rule that if Americans start saving at a high rate that the stockmarket, and economy must suffer proportionately? Or, as with all economic theories, is it just a child stacking letter blocks.



I think you need to reflect on the difference between a 'headwind' and a 'tailwind'. If you did, you'd realise that the writer of the article agrees with you completely.


This is one of those few, memorable articles that reminds me why I read The Economist.

This analysis is gratifyingly spot-on. For the past 6 months, a small, intelligent minority has been reiterating that the real issue central to the crisis is not inflation, interest rates, the value of the dollar or house prices- it is consumer debt.

Astonishingly, almost none of the vacuous talking heads that assail us with their TV punditry have factored this into their prognostications. The American consumer has had a negative savingas rate since 2005, and consumer debt (home equity plus credit cards, etc) is at the highest relative and absolute levels in history.

This means that in current and future periods, the American consumer is going to have to pull back spending in order to pay his debt down to normal levels. This will exact a terrible toll on GDP and stock prices for a long time. The housing bubble was financed by low interest rates which led to excessive borrowing, which loose money bid up housing prices.

As this article brilliantly explains, what we're seeing is a classic correction. Credit is being withdrawn, asset (home and stock)prices are falling, and consumers, with no more cheap credit available, are being forced to live within their incomes.

The incompetent and culpable Ben Bernanke failed to see he was merely fueling the deluge of cheap debt by lowering interest rates (I long argued -in isolation- that he should have done the exact opposite, to precipitate this correction). Wall Street robber barons, greedy for bonuses, have been predicting a swift recovery, wilfully ignoring the terrible debt burden borne by the consumer, who is the engine of economic growth. Dream on, dude.

The recession will be long and painful. It will only end when 3 things happen: House prices should fall to a historical ratio of value to rent; consumer savings should return to positive territory; and consumer debt should revert to historical levels relative to income.

Oh yes, and the crude oil price bubble should burst.

Until these happen, brace yourself for plenty pain ahead.

lev. d.

the mother of all hangovers was the inevitable outcome to a world economic system held up by credit and cheap money.
"instead of trying to save the whole capitalist system", bernanke should have RAISED interest rates, to "uphold the sanctity and credibility of money"(the dollar). by pandering to the high rollers, in the obsene gambling casino,he debased the currency. this is not the same world inherited by the last low dollar white house government-which reaped the export led returns.
history is repeating- but on a far higher any marxist would have to close ones eyes deliberately not to see the revolutionary consequencies inherent in the situation.
the fact of the matter is this: CAPITALISM HAS COME UP AGAINST THE BARRIER OF CAPITAL ITSELF-SURPLUS VALUE-PROFIT-THE UNPAID LABOUR OF THE WORKING CLASS. the masses will either come to power through a successful socialist revolution, or capitalism will drag humanity back to its savage state- if its lucky.


If the article is correct and the stock market continues to decline, perhaps everyone with retirement investments in the market will begin to suffer. The market was only created by uncontrolled govenment spending. The resulting deficit, which they didn't mind passing onto progeny, is fnally going to affect them. I don't feel pity; they let their govenment act irresponsibly. Democracy can only exist until the irresponsible majority of those who even bother to vote realize they can vote themselves largess from the public treasurey. I'm paraphrasing Alexander Tyler.


You write:
"While commodities investors seized on the “flation” part of the outlook, fixed income investors worried about the “stag”."

Shouldn't it be the other way round?

Amazed by People

@bulldoze, one requirement to read these columms is a modest comprehension of the english language: "The article said that gold rose $33.00 an ounce, not "to" $33.00 an ounce." Go ahead and apologize, it's good for the soul.


In 2004 dollars, or today's Euros if you prefer, the Dow would be at <9000 and at some point the absolute value of the firms' assets provide a hard bottom.

You can't expect it to fall on a continuing basis simply because of some skepticism du jour, just as gold can never fall below a certain value. There are huge bargains to be had, this is when investors make their money - when they buy.


If you count the massive decline in the $ since 2000 the Dow is probably at the same level after the .com bust or lower.

Gile na Gile

The only thing that can boost the Dow to a steady long-term hovering in the 1350-1400 range is the unamended passage of the Iraq Hydrocarbons Bill. This could release in the short term a stabilising extra 1.5 - 2mbpd onto the futures market bringing prices down by as much as 20$ a barrel .. or even more depending on other extraneous factors. This will give all businesses, pretty much everywhere, large and small, an opportunity to retrench and ponder their options in a rapidly changing environment.

In the absence of this I really can't see a bottom and am frankly puzzled by the relevance of the factors adduced in the article.


Within the next 5 years 6,500,000 homes will go into foreclosure. The bailout plan for the homeowner may help 500,000 homeowners. At the same time new home loan rates are increasing and the FHA has raised the price limit for financing homes, credit card rates are increasing, fees for banking services are increasing. brokers are still selling homes upside down, the cost of energy and the cost of food has risen dramatically--which may force more homeowners into default, wages are stagnant and everybody seems to think we will muddle through. The hedge funds will deliver the final blow and the equity firms will follow close by on their heels and pick up the pieces. For those picked up pieces to get a return on investment may take ten years. Now is the time to force down lower rates on everything, cut bloated government spending, increase wages, and Regulate, Regulate, and Regulate. Somehow there has to be a $1,000,000,000,000 write down and the sooner that happens, the sooner we will be on our way to recovery. Stop the damn spinning and lets get to work!


The author is talking nonsense when (s)he says that increasing the savings rate (which has been zero and even negative in recent years) “would be an enormous headwind for economic growth”. In fact real economic growth can only happen through savings. The income not consumed does not end up under mattresses but is invested in the means of production: infrastructure, factories, research and development, etc, which then produce more goods thus raising the overall standard of living. Is it too much to expect the writers at the Economist to know this?


"gold soared to $33 an ounce": either you dropped a digit or you you botched the preposition; gold hasn't been in two digits of dollars for more than 30 years.





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