The following chart shows the 110-year history of the Dow Jones on a log-linear chart. It will be apparent that any comparison with the 1929 stock market crash is an exaggeration. We are not going to see 20% unemployment in the near term. Why? For several reasons:1. This crisis is being blamed on the wrong people - the CEOs when the excesses fundamentally are caused by the government and Fed Reserve. The CEOs are just paid to support these monetary policies that stimulate debt creation. The central bankers around the world are also implicated for not speaking out, whether from ignorance or their tacit support. If the wrong people are being blamed the activity can happen again. I still believe we are looking at another rally, though not for another 3 years. Asset deflation will free up capacity and undermine investment and consumption.
2. There was not a huge industrial over-capacity prior to the crash. In fact markets were looking pretty tight. This asset deflation will cause an over-capacity, but a little stimulus from governments, inflation and a little further asset deflation will see the monetary base stabilise over the coming 10 years. In the meantime the market will probably go sideways. But since there is no huge over-capacity, I would expect even better than that. I'm actually expecting the US government to add further stimulus in future years. I think you will see even more abuse of derivatives, so I expect the real depression to be in another 10-15 years.
------------------------------------------------Andrew Sheldon www.sheldonthinks.com
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