Things don’t just happen in isolation. There is the tendency for events to occur in cycles and in inter-related groups. For each effect, there are multiple causes which have evolved over time. While there is the tendency to explain away any negative (or non-positive) occurrence as some isolated incident and not some systemic problem (particularly in an election year), that is proven generally not the case.
Thus far in 2008, we have seen declines in the US stock market indexes erase (as in wipe out) all the gains from all of 2007. This is pretty much true across the board, whether one is describing indexes segmented/specialized as industrial, technological, utility focused, transportation, or service industries. The same is the case for the broader indexes—be they the NYSE, the Wilshire, or the Standard & Poor's. Traditionally what happens to the equity markets in the first weeks sets the pace for the entire year. Market analysts define a “correction” as a 10% decline. We’ve just had that. Are the downs behind us?
While there have been such corrections before in my adult lifetime, the swings of the pendulum have been very lopsided, mostly in the wrong directions. I graduated from high school in 1968; I will use that as a benchmark. A year’s tuition and fees at the University of Illinois was just over $250. Gasoline was $.25 a gallon. An “equipped” new car could be had for $2,500. The median-priced home sold for $17,000. Gold was officially priced at $35 an ounce and silver was around $1.40. A full fast-food meal was a buck or less!
The US Dollar was king! The United States was the largest creditor nation on the planet. We invented and manufactured the goods that the world wanted to have. This was reflected in a huge global trade imbalance which was in our favor. “If” a family had one credit card, it was probably for some oil company, and the entire balance was paid-in-full each month. Our total National Debt stood at $345 billion. Just think about where we are now some 40 years (or roughly two generations) later.
I just looked back on what I have just written, and Oh, my God... I’ve finally morphed into my parents describing to me the 1920’s, the 1930’s, the Great Depression, FDR’s New Deal, and the need for another “therapeutic” World War. Brace yourself folks, we are in for quite a year!
I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.
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This story was published on January 14, 2008.