Case in point: I have been arguing my point of view quite a lot lately, all of it falling on deaf ears. Every time I felt I desperately needed a big dry erase board so that I could illustrate what I am talking about. Rather than having to make drawings, I have culled a few charts to help me here.
Our first chart here shows the history of the Dow Jones Industrial Average, from 1885 to the present. Do you see that little blip around '29-'32? Yep, that's the Great Depression. It looks like nothing compared with the runup that started in the '80s and is on its way down now. The precipitous rise was hampered for a while by 9/11/01, as you can see, but was aggressively resuscitated. Those who are still in denial, are naiively optimistic, or are simply not being intellectually honest continue to insist that with more aggressive resuscitation, we will recover again and somehow maintain this unbelievable high...
Now here's the same chart, though it only goes as far as 2004 and it is calculated logarithmically--meaning that the meteoric rise you saw in that first chart is compressed significantly. I like the fact that the person who made this chart has demonstrated what I have repeatedly pointed out. No matter how dramatic the rises and falls, they tend to go in periods...the upward growth is relatively smooth...but the periods that follow this upward growth are chaotic, having a jagged or 'roller coaster' effect. It is during these periods that people suffered the most. The sacred cow "free market" always eventually fixed these problems (though, if this chart is right, it takes between 10 and 20 years...), but what happened to the real people on stage while the free market did its work behind the scenes? What happened to the average standard of living? What happened to crime levels during these periods? How did people cope with all of this? These are the questions we need to be asking right now. Regardless of whether the Obama Administration does everything in its power (at which I tremble...); regardless of whether or not the free market will always correct itself if it is allowed to do so; regardless of how far we fall and how fast, what will help us most right now is to understand what life was like during those red phases. There were lots of casualties, both figuratively and literally. We have got to face this fact, the sooner the better.
Here's another example to reinforce my insistence that when markets become unsustainable, they have no choice but to correct themselves. This sounds fine in theory, but this is what a correction typically looks like; and the higher the rise, the greater the fall. These two charts show the 1929 Stock market crash and the Nasdaq crash in the late '90s/early '00s. We have every reason to expect our chart to look like this. However, if you look back up at that first chart, at how we shot up into the stratosphere over the past three decades, the prospect of what is to come becomes rather frightening. If our chart is going to look like these ones, we've got a long way to go before we hit bottom!But I believe that the next chart is the most telling of all, and it is the main reason why I've been predicting this for over ten years. This chart shows the level of personal household debt compared with our Nation's Gross Domestic Product:
Our level of personal debt grew very significantly during the '80s, but then in the late '90s it shot way up and has by now broken the 100% line. This means that our personal debt--our mortgages, credit cards, etc--exceeds our earning capacity. This doesn't even take into account our government's national debt. When did this precarious situation last occur? You guessed it--the late '20s. And the graph more or less mirrors the ones we've been looking at above...Surely you are getting the picture. There is a reason why, historically, graphs with huge upswings are followed by huge downswings. It's pure and simple common sense. If I have to explain it to you, you must be an economist.
...See that ye be not troubled. For these things must come to pass, but the end is not yet.
(Matthew 24:6)
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