Dow Drops $8.4 Trillion of Wealth!

Each morning, as I watch the news, read the papers, and write my posts, I'm reminded constantly that this is the "worst economic crisis since the Great Depression."

It remains to be seen if we'll ever have another crisis on par with the collapse of capitalism in the 1930s (see Nobel Prize-winning economist Gary Becker, for example, "We're Not Headed for a Depression").

That said, I might as well admit that I've been in a bit of political funk over the news. The ongoing market turmoil is killing the GOP's chances in November. There's no other way to spin it ... no matter how damaging are Barack Obama's ties to each and every left-wing oppositional group under the sun.

This morning's Wall Street Journal, with yet another banner headline, captured the political implications of economic crisis: "Market's 7-Day Rout Leaves U.S. Reeling":

Stocks fell for the seventh straight trading day on Thursday, continuing what amounts to a slow-motion crash that has pulled the market down more than 20% over that brief period.

On its way down, the Dow Jones Industrial Average broke through another milestone, closing below 9000 for the first time since 2003, wiping out the bulk of the gains from the last bull market. The decline leaves America in one of its worst bear markets in decades, a slump that is triggering comparisons to long-running declines of the 1930s and 1970s.

Thursday's decline - the 11th largest in percentage terms in the Dow's history - put the stock market either in, or nearly in, a crash. A common definition of a crash is a 20% decline in a single day or several days. The Dow's crash in 1987 was 22.6% in one day. The 1929 crash was back-to-back declines of 12.8% and 11.7%.

On my way to work each day, or after I drop off my boy at elementary school, I look around, taking in all the people hustling to their jobs, all the moms strolling the babies and kissing their little ones goodbye, and all of the beautiful landscaping on all of the fabulous homes that line the drives of nearby neighborhoods in suburban Orange County.

And then I say to myself: "A depression does not look like this."

Indeed, some economists argue that the banking crisis will not bring down the U.S. economy - that indeed, the fundamentals are sound (see, Professor Casey Mulligan, "An Economy You Can Bank On").

It's mass psychology that's going to matter, however, and people are feeling the stress. A period of three and a half weeks remains a long time in politics. But if we keep getting daily doses of market declines, while consumers and homeowners stress over inflation and dwindling balances on 401k statements, not too much else is going to matter.

Graphic Credit: Wall Street Journal