THE DEPRESSION OF 2008?
October 2, 2008
Wall Street is dead. The Wall Street domino has toppled just about everything in sight: U.S. stocks large and small, within the financial industry and outside of it; foreign stocks; oil and other commodities; real-estate investment trust; formerly booming emerging markets like India and China. Even gold, although it has inched up lately, has lost 10 percent from its highs earlier this year. Of all the dominos that have tipped over, the most psychologically damaging collapse was the last: the very notion of diversification itself, says the Wall Street Journal.
How much worse can things get? Is there any way to prevent Wall Street's death from taking you out too, asks the Journal?
Let's consider some of the arguments that have been surfacing lately, mainly that we are headed toward another Great Depression. Even though the failure of the U.S. House of Representatives to pass the bailout plan makes it seem possible, it is not likely to happen for two reasons, says the Journal:
- Depressions start not when lots of people are worried about them, as we have today, but when no on is worried about them, as in 1929.
- Also, there is no fear that the federal government could not rebuild strength nor flood the economy with cash.
- U.S. nonfinancial companies have just under $1 trillion in cash on their books.
- Even though Wall Street is dead, innovation is not: in the months to come, clever new financial go-betweens will spring up and find a way to get that cash flowing again.
Therefore, it is hard to see how a depression could get underway with so much capital is waiting in the wings, says the Journal.
Source: Jason Zweig, "The Depression of 2008? Don't Count on It," Wall Street Journal, September 30, 2008.
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