Dramatic, isn't it? I can only imagine what the chart would look like if we had workable data earlier than 1936, perhaps back to 1926, to see the peak of 1929.
I showed this chart to a bud earlier this evening who said "hey, it can only go up!" His enthusiasm is appreciated, but I'm not convinced it will, tho' he does invoke an effect here that carries an ironic edge. The chart is adjusted for inflation; that is, the graph, along with use of a logarithmic scale, brings the curve downward from what it would be without the adjustment. Considering we're now in a deflationary period, the curve will begin to adjust upward as inflation -- the steady increase in prices and in this case earnings due to increasing money and credit supply -- is drained away with the falling money and credit supply.
The last time in living memory we had a deflation close to this was the early 1980s, when inflation was turned back by a decreasing credit and money supply. I don't recall how bad unemployment went, but total economic production fell down well within capacity, maybe something on the order of 75% percent.
The scary part is that in the 1980s the S&P earnings went from about $40 to about $25 before recovering. Per the chart we're at maybe $8 now. Does that imply deflation and unemployment are going to get worse before they get better? If we follow the conventional wisdom that the stock markets are the leading indicator for the economy, I think we have a sobering answer.
Dramatic, isn't it? I can only imagine what the chart would look like if we had workable data earlier than 1936, perhaps back to 1926, to see the peak of 1929.
I showed this chart to a bud earlier this evening who said "hey, it can only go up!" His enthusiasm is appreciated, but I'm not convinced it will, tho' he does invoke an effect here that carries an ironic edge. The chart is adjusted for inflation; that is, the graph, along with use of a logarithmic scale, brings the curve downward from what it would be without the adjustment. Considering we're now in a deflationary period, the curve will begin to adjust upward as inflation -- the steady increase in prices and in this case earnings due to increasing money and credit supply -- is drained away with the falling money and credit supply.
The last time in living memory we had a deflation close to this was the early 1980s, when inflation was turned back by a decreasing credit and money supply. I don't recall how bad unemployment went, but total economic production fell down well within capacity, maybe something on the order of 75% percent.
The scary part is that in the 1980s the S&P earnings went from about $40 to about $25 before recovering. Per the chart we're at maybe $8 now. Does that imply deflation and unemployment are going to get worse before they get better? If we follow the conventional wisdom that the stock markets are the leading indicator for the economy, I think we have a sobering answer.
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