Stock Market Woes.

If you're an all-around music lover (as am I), here's a song on the note of energy:

http://www.youtube.com/watch?v=b6QSvSei5ho

It's the music from the Chevron "Human Energy" series of commercials. It's remarkably relaxing. Proper credit goes to Paul Leonard-Morgan for his wonderful composition.

There is a lot of truth to be had in those commercials, regardless if they're coming from a "big oil" company.

On to the issue at hand. We're in an apparent "crisis" with the stock market right now. People are panicking because the stock market lost a substantial percentage yesterday. It has already been decreed by some high-profile people that another "Great Depression" is right around the corner. The signs are there, but not the ones they would like you to pay attention to.

Barack Obama would have you believe that because unemployment is admittedly up to 6.1%, and the Dow Jones yesterday lost a staggering 504 points, that we are on the brink of another Depression. Sorry, Mr. Obama, but you are wrong yet again.

The Great Depression was caused by massive over-investment and underconsumption brought about by the roaring 20's. The world was recovering financially from World War I, and could not handle any significant economic downturn. Since the economic outlook was very positive at this time, no one could believe that stocks (such as US Steel) were overinflated. Once this bubble popped, the spirialing effects of a significant recession began. Britain had returned to a Gold Standard, but chose to abide by Gold prices from just before WWI began. The frightening idea that banks could shut down overnight (and that depositors would lose their money before they could close their accounts) caused many to run to the bank and withdraw everything they had. In short, there simply was not enough money to sustain the economy.

Coupled with this was the fact that much of the money invested in the stock market was borrowed money. This can be related to last year's downturn of the real estate market. Investors loaned (in some cases) over 50% of a given stock's value to their clients. At this time, there was more money in loans than currency in circulation. Finally, the Dust Bowl of the day, unemployment hovering above 25%, and the significant devaluation of worldwide currencies led to the events that unfolded throughout the 1930's.

Consider this: in the less-talked-about crash of 1987, the Dow Jones shed a staggering 22.6%. This was a much larger one-day percentage loss than in the downturn before the Great Depression. In a day when the total DJIA was at 2,247, it lost 508 points in one day. Two days later, the market saw the largest one-day gain since 1932. By December 31st of that year, the markets ended up in the green for Calander year 1987, up by 42 points (about 3%)

(Take a breath, that's a few numbers to take in.)

Monday saw a loss of 504 points from a market with an average over 11,000.

Something far worse than 6.1% unemployment and a mere 4.4% off the top of the stock market is needed to begin a depression. Something that would cost the taxpayers billions in unneeded spending. Something like, the federal takeover of several finnancial institutions....

Wait, that's already happening.

Investors are panicking because the Government is interrupting the role of the free market. The burdeon of these collapsing companies is falling on you and me. And by doing this in the first place with some aging institutions, they have set the precident for future bail-outs at the smallest sign of trouble. Personally, I would rather weather the short-term downfall of the market in exchange for a much less regulated free-market in the future. After all, I do have a daughter and a stepson to think about...

-Craig

PS, the Dow gained nearly 2% back today. Told you not to worry ;-)