Friday, July 31, 2009

Is the Economic Crisis Over? HA!!

[Note: This is an update to my previous article, Will the Economic Crisis Inflame the Culture Wars or End Them?]

In light of the recent good news about the stock market, I thought I'd share a few interesting quotes from the year 1930 (a few months after the Great Depression began, and a full 11 years before it ended).

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover."

- Herbert Hoover, President of the United States, May 1, 1930

"For the immediate future, at least, the outlook (stocks) is bright."
- Irving Fisher, Ph.D. in Economics, in early 1930

"The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity."

- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930

Indeed, click on the chart below...

As noted by the folks at Trading Stock Market:

*In the final 2 months of 1929, the Dow Jones fell 200 points (a 50% drop from the top of the market)

*Then, for the next 5 months (until May 1930), the Dow Jones went up 100 points (a 50% increase from the market's bottom).

*Then, for the next 2 years and 2 months (until July 1932), the Dow collapsed to the $40 level

Why is this interesting?

Click on the chart below...

Note the following:

*From the time the Wall Street Crash began in September 2008 through March 2009, the Dow Jones fell from about 11,500 to about 6,500 (a 44% decline).

*Since March 2009, the Dow has increased to over 9,000 (a 40% increase from the market's bottom).

As The Daily Reckoning guys note, "As a general rule of thumb, a [stock market] bounce can be expected to recover half of the losses from the crash."

If that rule applies this time, the Dow may reach 10,300 very shortly, before leveling off and falling again.

What's the bottom line?

The economic crisis ain't over. Not by a long shot.

Oh, and one final note: When people start to realize the crisis ain't over, I wonder if they'll start paying attention to news items like this one...

Spitzer: Federal Reserve is 'a Ponzi Scheme, an Inside Job'

In a wide-ranging discussion of the bank bailouts on MSNBC’s Morning Meeting, host Dylan Ratigan described the process by which the Federal Reserve exchanged $13.9 trillion of bad bank debt for cash that it gave to the struggling banks.

Spitzer — who built a reputation as “the Sheriff of Wall Street” for his zealous prosecutions of corporate crime as New York’s attorney-general and then resigned as the state’s governor over revelations he had paid for prostitutes — seemed to agree with Ratigan that the bank bailout amounts to “America’s greatest theft and cover-up ever.” [snip]

“The reality is the Fed has blown it. Time and time again, they blew it. Bubble after bubble, they failed to understand what they were doing to the economy.

“The most poignant example for me is the AIG bailout, where they gave tens of billions of dollars that went right through — conduit payments — to the investment banks that are now solvent. We [taxpayers] didn’t get stock in those banks, they didn’t ask what was going on — this begs and cries out for hard, tough examination.

“You look at the governing structure of the New York [Federal Reserve], it was run by the very banks that got the money. This is a Ponzi scheme, an inside job. It is outrageous, it is time for Congress to say enough of this. And to give them more power now is crazy."

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