The news from stock and bond markets as well as other corners of the financial world was particularly bad Monday as indices across the board sank precipitously. Some even speculate the economy has gone past a simple downturn to that of a panic. The decline of the major indices in the US stock markets has been stunning. The best known of the indices, the Dow Jones Industrial Average (DJI) peaked at 14,164 on 9 October 2007. 364 days later, the index has plummeted by 4,209 or 29.7 %. Other indices have sunk as precipitously. The NASDAQ index hit 2,861 on 31 October 2007. Since then it has dived by 999 points to 1,862, a 34.9 % plunge. The widely based S & P 500 index peaked at 1,576 on 11 October 2007. 362 days later it has dropped by 520 points to 1.056, a drop of 33.0 %.The amounts these and other indices have declined in less than one year's time are all but unprecedented. Looking back in history, the only time that indices have declined greater than this have occurred was during the Great Depression from 1929 to 1938. Obviously market values are much greater today than in the past so the raw dollar amounts lost in the last year are probably at least nearing a par with those suffered in the first years of the Great Depression and may have exceeded them.
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In spite of the big Federal Bailout passed by Congress and signed into law by President Bush late last week, confidence in the economy both in the US and across the globe continues to weaken fast and furiously. The bailout dollars have yet to be placed into the economy, and there are increasing questions as to whether this will help at all. Banks have fully stopped moving money between themselves, basically hoarding cash, even as the Federal Reserve pumps near $1 trillion dollars into the system by simply printing more money.
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Is a bank run in the future ? Some would say yes, but it would seem unlikely given the full federal protection and insurance of account balances that was bumped up to $200K as part of the bailout legislation last week. However, some will withdraw cash from financial institutions to protect themselves as well as to be prepared for a worse scenario, imaginary or not.
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Expect further noteworthy declines in indices to continue this week and beyond. The DJI should drop below 9,000; the NASDAQ to below 1,600; and the S & P 500 drop beneath 950. Commodity prices should continue to decrease with the exception of gold. And news of some new bank failures probably looms later this week. And the unemployment numbers as well as reports on spending and other key economic indicators will be downright frightening as they are made public in the coming weeks.
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The recession is definitively here, if there were still any questions. The bigger questions are whether economies here at home and globally will sink into a depression, a clear possibility now -- although still less than 50-50 at this point. Additional radical actions are under consideration by the US Federal Reserve as well as governments in Europe and elsewhere.
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In many places, people are starting to become panicked.
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http://www.reuters.com/article/hotStocksNews/idUSTRE4952D220081006
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http://robertreich.blogspot.com/2008/10/meltdown-part-i.html
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http://www.washingtonpost.com/wp-dyn/content/article/2008/10/06/AR2008100603249.html?hpid=topnews
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http://www.nytimes.com/2008/10/07/business/07markets.html?_r=1&hp=&oref=slogin&adxnnlx=1223377210-sgiSXyqhOeJoDl%20me2aPJg&pagewanted=all
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http://news.yahoo.com/s/ap/wall_street;_ylt=AgsQfJ1A8eRm3l51LMZd99Ks0NUE
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http://www.marketwatch.com/news/story/fed-treasury-take-new-steps/story.aspx?guid=%7B80A62574%2D3F24%2D471C%2D8AD0%2D499AE370245A%7D
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