I plotted this amateur chart. I converted the Dow Jones closing peaks of 1906 & 1929 multiplying them by a factor of 137 and 37, respectively, so that they all look like the 14,000+ peak reached in October 2007. Today the index has declined as a percentage as much as it did during the same amount of days during the start of the Great Depression.
And at that time, bailouts and other such policies wer also applied.
Art transcends ideology.
http://mises.org/Community/blogs/ruben
Rubén: I plotted this amateur chart. I converted the Dow Jones closing peaks of 1906 & 1929 multiplying them by a factor of 137 and 37, respectively, so that they all look like the 14,000+ peak reached in October 2007. Today the index has declined as a percentage as much as it did during the same amount of days during the start of the Great Depression. And at that time, bailouts and other such policies wer also applied.
Where is your data from?
"I cannot prove, but am prepared to affirm, that if you take care of clarity in reasoning, most good causes will take care of themselves, while some bad ones are taken care of as a matter of course." -Anthony de Jasay
Rubén:I plotted this amateur chart. I converted the Dow Jones closing peaks of 1906 & 1929 multiplying them by a factor of 137 and 37, respectively, so that they all look like the 14,000+ peak reached in October 2007. Today the index has declined as a percentage as much as it did during the same amount of days during the start of the Great Depression. And at that time, bailouts and other such policies wer also applied.
I prefer the term "Greater Depression". This is because not only are the financial instruments involved far larger and more esoteric, but the government is even freer to intervene to its fictional heart's content, exacerbating the problems well beyond what even the schemes of Rooseveldt II.
My answer will be from an economics theory point of view.Economics can predict that if money supply and interest rates are not controlled by means of voluntary exchange, this will lead to misleading price signals and there will be a misallocation of resources. Once this misallocation is discovered through realized losses, there will need to be a time period in which the correct allocations have to be found by entrepreneurship. The fastest way that this can happen is through correct price signals and incentives, which are available only through voluntary exchange. Any violent intervention will distort price signals and incentives and will prolong the period of correction.So basically, the more government intervenes, the more severe and prolonged will this recession will be.From an Economics theory point of view, looking at the slope of the Dow Jones index can offer no law about the severity or length of corrective periods. Doing this is not an economic exercise, but a statistical one. However, because there can be no mechanical laws governing human action, the attempt to predict future human action through extrapolation of historical data, can only be speculation. The speculation may prove to be correct, but that will only be shown after the fact. And there is of course nothing wrong with trying to guess the future.The reason why I am putting so much effort in to separating speculation from economic theory is because this is a website devoted to economic theory, while speculation discussion is of course not discouraged. Even though you may get some perfectly plausible and even probable speculations about the current correction from people who are Austrians, you must be able to discern when they are speaking with their investor/speculator hat on, and when they are explaining what Austrian Economics can say about this crisis, so as to not get the wrong idea about Austrian Economics if their predictions do not turn out to be true. It is important that the Austrian position is not misrepresented as supporting any claims of prediction of outcomes by way of statistical analysis.There you go, one third answer, two thirds rant. Sorry about the last part, but some of us are a bit obsessive about method.
By the way, here is a nice interactive presentation of how this bear market compares to previous ones using the same method as you have:http://www.nytimes.com/interactive/2008/10/11/business/20081011_BEAR_MARKETS.html
Solid_Choke:
I got all data from www.dowjones.com.
For 1906, I found out that the peak was 102.66 and the trough in 1907 was 53. So I multiplied all quotes during that period by a factor of 137.975161.
For 1929, I found out that the peak was 381.17 and the trough in 1932 was 41.22. So I multiplied all quotes during that period by a factor of 37.1606632.
Having done that, I was able to plot this old data in a scale that the 21st century reader is more related to when looking at Dow Jones figures.
Rubén
Dear Zlatko:
I very much appreciate the warning tone of your reply. I refrained from extrapolating in my chart because of the reasons you mentioned. And I am comparing today's situation with the bear markets of 1907 (which recovered quickly) and the 1930s (which recovered after more than a decade) to make the point that recovery could be either fast or slow. We will not know until after it happens.
However, I am looking forward to updating this chart on a periodic basis and see if you are able to discern any patterns then, helped with the knowledge of the policies that will have been applied by then.
Gracias.
An update....
JCFolsom:I prefer the term "Greater Depression".
Come now, new century and all...
Great Depression 2.0 or maybe 2.1 if you count the 70's.
What I hate is that when Obama gets elected, if he puts into place all of his Socialist schemes, it might time the boom/bust cycle just right so that he gets the credit for leading us out of GD II.
I really, really hate correlation implies causation.
"Keynesianomics is a Ponzi scheme."
"You are correct in that Capitalism does not help with poverty, because it eliminates poverty altogether..."
"That wonderful strawman: greed."
Inequality bad.
Barack Obama is not putting into place socialist schemes. He is making proposals for changes of government policies that have currently failed, but he is not advocating the control of the state over the means of production.
Yeah, I'd say he's more fascist than socialist.
-Jon
To darkness I condemn you...
Rubén: An update....
Call me crazy, but why was a common measure of inflation not used to convert this chart so these were all real values?
Also, implying that the end of the Great Depression was a cause of something other than World War II is idiotic.
Jonathan:Also, implying that the end of the Great Depression was a cause of something other than World War II is idiotic.
Are you saying that WWII ended the Great Depression?
Jonathan: Rubén: An update.... Call me crazy, but why was a common measure of inflation not used to convert this chart so these were all real values? Also, implying that the end of the Great Depression was a cause of something other than World War II is idiotic.
1) I thought about the common measure of inflation issue before posting the charts. But then those measures are about consumer price indexes or producre price indexes, not equity price indexes. Maybe they could be totally unrelated. Also it was imperative for me, in order to compare these graphs, that both started at the same value. That is why I took the decision of creating my own index. I wanted the "base month" to be October 2008 with a value of 14,000. Because that is the number that you, as a 21st century reader, are used to associating with a peak. The same way as the current 8000 support value coould perhaps take a while to be broken as I remember that the Dow stayed around that value for a few years during the nineties. For some reason the market has a memory and those numbers have some sort of a sentimental value.
2) I never implied that the end of the Great Depression was World War. In fact, I even didn't consider the part after 1932. I only concentrated on the beginning when the Down declined from a peak of 14,000 (in today's scale) to 2,500 (in today's scale)
I will update this chart at the end of next week in order to discuss the development of this century's bear market
Anonymous Coward: Jonathan:Also, implying that the end of the Great Depression was a cause of something other than World War II is idiotic. Are you saying that WWII ended the Great Depression?
Absolutely.
Jonathan: Anonymous Coward: Jonathan:Also, implying that the end of the Great Depression was a cause of something other than World War II is idiotic. Are you saying that WWII ended the Great Depression? Absolutely.
Have any proof other than your average run of the mill propaganda?
You know, the same propaganda that says that the gold standard caused the Great Depression.
Anonymous Coward: Jonathan: Anonymous Coward: Jonathan:Also, implying that the end of the Great Depression was a cause of something other than World War II is idiotic. Are you saying that WWII ended the Great Depression? Absolutely. Have any proof other than your average run of the mill propaganda? You know, the same propaganda that says that the gold standard caused the Great Depression.
Inflation remained relatively steady throughout the 30s(during the Depression) and the 40s(while the men were atwar), but had a large spike as soon as the war ended and the postwar boom of men being home resparked our economy.
What is your explanation...Roosevelts socialism?
That is also not to imply that the government brought us out of the Depression in any way shape or form. I just feel (as Robert Higgs does) that the War created job opportunities and a sense of solidarity that helped people feel confident enough to put money in banks. While they were putting their money in the banks, the bank holdings were rising allowing for more money to be loaned out by the aforementioned banks. The economy was piss poor during the War, by standards of consumer ability to do whatever they wanted, but postwar the economy boomed like crazy as government controls were taken off and employment was at a high.
Jonathan:That is also not to imply that the government brought us out of the Depression in any way shape or form. I just feel (as Robert Higgs does) that the War created job opportunities and a sense of solidarity that helped people feel confident enough to put money in banks.
The same Robert Higgs who this is attributed to;
As Robert Higgs so aptly noted, World War II did not end the economic hardships Americans faced. Although U.S. unemployment rates fell to record low levels during the war, rationing and shortages dominated economic life. People had money in their pockets, but few places to spend it, since virtually all investment was for war goods. Furthermore, much of the drop in the nation’s unemployment rate was due to the fact that millions of American men were conscripted into the armed forces. To put it mildly, while people had jobs and paychecks, they still were poor. War might have provided jobs, but it did not bring prosperity.
Furthermore, much of the drop in the nation’s unemployment rate was due to the fact that millions of American men were conscripted into the armed forces. To put it mildly, while people had jobs and paychecks, they still were poor. War might have provided jobs, but it did not bring prosperity.
Jonathan:The economy was piss poor during the War, by standards of consumer ability to do whatever they wanted, but postwar the economy boomed like crazy as government controls were taken off and employment was at a high.
That kind of sounds like you are saying that WWII didn't end the Great Depression but the post-war period where government controls were lifted and entrepreneurs were allowed to do what they wanted (within reason since a bunch of New Deal programs lasted up to Reagan's reign) with land a capital to create a brighter future did.
Plus the giganormous Broken Window Fallacy that was Europe and Asia who's rebuilding created 'prosperity' for the biggest industrial power that escaped war destruction.
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