...1% inflation, 5-6% interest rates, and 4.5% unemployment. Can you name
one bear market where such awesome conditions existed?
Those conditions are virtually identical to 1929. Actually, conditions were even
better then, with lower rates and better productivity growth.
I think you'd better check your textbooks. The Great Depression was caused by improper fiscal policy by the Federal Government. Since the US currency was fixed on a gold standard at the time, there was no such thing as inflation. Unemployment was much higher, and in response to a slowing economy the Government cut back fiscal spending in order to maintain a balanced budget. This in turn caused more unemployment which led to an even slower economy, and more spending cutbacks, which led to...a spiraling effect. The spiral was not broken until FDR started massive deficit spending to jump-start the economy and shock it back to life.
I don't think we have the same conditions today--far from it. In the event of economic slowdown, the Fed has all the power it needs to cut loose its monetary policy. In fact, if anything, the US economy today is in danger of overheating rather than slowing down. However, inflation and interest rates are held low due to weak currencies overseas. If anything, we have the opposite of the conditions which started the 1929 Great Depression.
Unless we have an external supply-side shock such as the 1979 oil embargo, the future of the economy looks as healthy as ever. Weak currencies abroad will keep US businesses as sharp and competitive as ever. I see no doom & gloom. I think the market has overreacted to some crises in a few relatively small economies overseas, and it will rebound in the next two weeks.
bucky89
BTW, I don't think you can compare productivity today with that of 1929. I'll race you any day with my PC word processor against your manual typewriter. |
