Perspective people... perspective

Michelle provides some for us:

Today’s stock market drop is a record point drop, but does not even crack the top 10 single-day percentage drops in American history.

Let’s stop pounding the panic buttons.

***

On FNC right now, Neil Cavuto emphasizes that lending is going on and puts a damper on Heather Nauert’s panic-button heaving about credit-freeze anecdotes.

Are there businesses getting turned down for loans? Yes.

Here’s a novel thought: Maybe banks are finally learning they shouldn’t fork over money to bad risks.

***

Reader Jamie e-mails this link to a history of US stock market crashes and adds:

I like that the headlines are calling today’s crash the “worst ever.”

In terms of absolute points, sure. In terms of percentages in a single day of trading, 1987’s stock market crash was far worse, and the NASDAQ slide of 2000-2002 was massively worse.

And a recent addition to my blogroll, Robert (who I normally disagree with vehemently but who's a financial consultant and dead-on in my view on this, at least in part), e-mails his customers with the following:

During periods of volatility and uncertainty, it is important to maintain perspective and not give in to outlandish hyperbole such as “we are entering a new depression”. The Great Depression took place almost 80 years ago and the world is a very different place that it was back then. While recent events have certainly heightened fears about stability, we must not lose sight of the fact the US economy grew at a rate of 2.8% last quarter. Granted, that number was somewhat boosted by the tax rebates of the stimulus package however comparisons to the Great Depression border on the ludicrous.

The global economy is slowing, this much is obvious. The US economy is probably in recession and there is great uncertainty at the moment, but another Great Depression?  Very unlikely.

If you look at the data, you will see more differences than similarities between the 1930s and today:

• In the crash of 1929 the Dow Jones industrials plunged 40% in two months; this time around it has taken a year to fall 22%.
• The jobless rate jumped to 25% by 1933; it is little more than 6% in the US today. In Canada, it is 6.1%.
• GDP shrank by 25% during the early 1930s; it is up over 3% in the US over the past year and positive, .67%, in Canada as well.
• Consumer prices fell by about 30% from 1929 to 1933; while inflation is 3.5% in August in Canada, higher by 5.4% in the US.
• Home prices dropped more than 30% during the Depression versus about a 16% decline in the US today. In Canada, housing prices have softened but have not experienced any significant declines.
• In the US, almost 40% of all mortgages were delinquent by 1934 compared with 4% today.  Keeping in mind that half of US households have no mortgage, that means that 2% of mortgages are in arrears in the US at the moment. In Canada, where lending practices have always been tighter, the mortgage business has remained reasonably strong.
• In the 1930s, more than 9,000 banks failed in the US compared with fewer than 20 over the couple of years. In Canada, there have been no major failures of any financial firms.

In fact, the stock market crash of 1929 did not cause the Great Depression but was caused by it. Poor government policies caused the Depression, for example:

• Instead of increasing the money supply, the Federal Reserve of that era reduced it by   one-third. Today, central banks around the world are pouring hundreds of billions into the system.
• Instead of lowering taxes during the crisis to promote growth, President Herbert Hoover raised them.     
• A wave of protectionism caused trade barriers to go up and further slowed international trade.

Furthermore, today the financial system has stabilizers in place, such as unemployment insurance, retirement pensions such as CPP and Social Security, government insurance plans such as CDIC and FDIC to protect bank deposits, and even circuit breakers to keep stocks from falling too far or too quickly. This is obviously a very serious, potentially dramatic situation but US lawmakers will pass a Rescue bill this week, because they simply must do so and with time, the situation will improve. (Some clever people may even find a way to make lemonade from these lemons).

Breathe folks... just breathe...

Comments

[Tim Chesterton]

Rick, I'm not seeing your blogroll, my friend. I've tried it in Camino and in Safari. Am I just using the wrong browsers?

[Rick]

It's not you Tim... every once in a while, BlogLines has some kind of issue resulting in very slow loading of the blog... when I find that happening, I simply remove the blogroll and that seems to fix things... I just put it back and all seems fine for the moment...