Save and Conquer

Investors are worried. The Dow Jones Industrial Average closed Tuesday at 9,447. That is down almost 34% from the high of 14,279 set in October 2007. We have seen retirement savings lose something like $2 trillion and AARP says that one in five workers has stopped putting money in their 401k.

I am worried about losses, but I know the market will not vanish. I think there is a strong possibility for the market to drop further, but I very much doubt we will see a Great Depression. The Great Depression saw the Dow drop a total of 89% from 1929 to 1932. It did not cross above the high set in 1929 until 1955.

Don’t forget that the Great Depression was exacerbated by the Fed doing all the wrong things. It tightened the money supply and raised interest rates at the start of the Depression. There was no FDIC or SIPC. And things like the lack of agricultural understanding mixed with record drought led to the Dust Bowl, huge job loss, and a migration of much of the population. There are some parallels in the current crisis, but not many.

The population in 2008 is better educated than in the 1930s. Worker productivity has increased every decade since the Great Depression. There have recently been some local droughts in the country, but land and water use are better understood. We are an industrial and informational society, rather than mostly agrarian and industrial. And we live much longer.

What I take away from that is that we are not headed for another Great Depression. And even if we do experience larger losses in savings, we will get through it. We may have to work longer than we planned before retiring, but all-in-all, I expect our lives will still be better than those of our parents and grand-parents.

Stumble it!