Monday , 11 December 2023

It’s the Economy Stupid, NOT the Stock Market!

…The Great Depression of the 1930s was bad, but what we are facing now is worse….Questions of how much worse and how long it will last are difficult to answer. [Any] predictions about the type and strength of potential recovery could be premature [but this article is going to make an attempt to do just that. Read on!]


...If a similar percentage drop in the Dow Jones Industrial Average like what happened in the stock market crash of October,1929, happened today the Dow would drop from the current 29,000 to 2,900 wiping out a nearly 30-year period of higher and higher stock price gains…Back then it took the stock market (DJIA) 25 years to regain its all-time price peak from August 1929 and, in inflation-adjusted terms, the stock market did not regain and exceed its previous all-time high until May 1959 – thirty years after the crash.


The almost casual attitude towards selloffs in the stock market that exists in this century is the result of assuming that the market will right itself and go right back up in short order or, if things are serious enough, the Federal Reserve Cavalry will ride to the rescue – every time.

The expectation that the Fed will always bail out the banks and the financial markets has muted the word ‘caution’ when it comes to investing. Some people seem to fancy themselves as smart investors because they bought stocks this past spring and are now feeling the euphoria from the effects of the Fed’s injection of the money drug into their financial veins.

We seem to have forgotten how difficult it was to extricate ourselves from a similar mess little more than a decade ago. The financial markets may have recovered more quickly this time but the economic backdrop is more characteristic of a patient that is “terminally ill but resting (un)comfortably”.

The Fed is very aware of how precarious the situation is. They have pulled out all the stops in their quest to “bring back inflation”. They are fighting an uphill battle…Inflation created by the Fed is losing its intended effect. It’s resulting effects on the economy are similar to those of drug addiction. Over time, each subsequent fix yields less and less of the desired results…

As The Depression Of The 21st Century unfolds, here are some charts of various economic indicators that bear watching:

  • the Capacity Utilization Rate,
  • the relationship of gold’s price to the monetary base,
  • Continued Jobless Claims,
  • Housing Starts,
  • Durable Goods Orders,
  • 5 Year Forward Inflation Expectation,
  • Historical Inflation Rate by Year,
  • U.S. Crude Oil Reserves and
  • Demand in luxury goods markets.


The upshot of all this is that the effects of inflation are growing more muted over time. More and more stimulus has less and less impact.

Also, the demand for money is increasing. People need money – not more credit. Inflating the prices of financial assets might make it look like things are getting better, but the reality of it all is that while financial asset prices recover and go to new highs, the economy never regains its full health.

The relative difference between stocks at all-time highs and the current state of the economy is growing larger. Some might think that higher stock prices are an indication of expectations for the eventual full recovery of the economy; but that is not the pattern of the economic cycle this century.

For the past twenty years, and longer according to some of the charts provided in the original article, economic activity is stagnating and weakening. Each bout with financial catastrophe leaves the economy weaker overall, and it never fully recovers. It just continues to muddle along.

Wall Street, the banks, and some investors seem to do well enough; but the comfort and overall good feelings associated with a rising stock market seem disproportionate to the disappointing level of well-being and optimism emanating from the general public and small businesses.

At this time, the economy is a better indicator than stocks and bonds (house prices, too) of our financial health.

We are currently in poor financial health and before we can get better, we will experience a healing crisis of immense proportion.

Editor’s Note:  The original article by Kelsey Williams has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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