One thing I'm sick and tired of hearing: That the economic meltdown caught everyone by surprise. Bullshit. Sane financial minds have seen this coming for years (Warren Buffet, anyone?).
For fuck's sake, even the writers of Grand Theft Auto IV had the foresight to include fake radio show hosts who talk about economic failure due to irresponsible ARM loans. You hear that, Washington? Even game makers saw this coming.
So cut the shit.
I just did a little bit of research. As of a year ago today, the DOW has lost approximately 4,526 points. First person to post a comment here or on the Reddit thread that puts that number in 1929-1930 DOW points wins the Internets for a day.
So: 4526 points adjusted to the 1929-1930 DOW.
Go.
Tuesday, October 7, 2008
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6 comments:
we lost 4,717 points approx 33% from the 1929 high 3861, which would be a 1274 point drop, what did happen from high to low was 90% reduction in value. (3861-401) today taht would mean DJIA 1400. That would be total destruction of the economic world as we know it.
OK. Best I can figure (math isn't my forte) is that the Dow is off its peak of about 14,000 by 32 percent right now.
By comparison, in 1929 the Dow fell from a Sept. 3 peak of 381 to a Nov. 13 low of 198.6, or about 52 percent.
So the current sell-off would have to continue until the Dow hits 7,280 to equal 1929.
What do I win?
I'm going to take a stab at this based solely upon buying power, using the InterWebs as a research tool. According to on "historical currency converter" I found, one dollar's buying power in 1930 would equal $13.12 in similar buying power today.
I realize this is a somewhat flawed argument. After all, how is "buying power" defined. Does it include all sectors of the economy, or only those extant in 1930?
Using this measurement, a 4,526 drop in today's Dow would be the same (in buying power) as a 345-point drop in 1930.
Handride: Ah, so the 90% reduction in value was the real kick in the teeth moreso than the actual index-point drop? How is the reduction in value factored?
Eddie: Interesting stuff. The estimates are varying wildly so far. I'm gonna have to figure out the most accurate basis to reflect the current economy in 1929-1930 terms. For example, how do we go about pricing in reduction in value as a factor? Anyone want to work up a set of solid criteria for this little experiment? (You win the Internets.)
Paul: The adjustment based on buying power is a nice take. Good to see that. So, the total point drop in 1929 was 1274. Based on your estimates we've had a 345-point drop. Using your method, we've still got a long way to go 'till 1274. Interesting enough, if the market kept shedding value to 7,280 points, your estimate and Eddie's look like they track each other fairly close.
This is good stuff guys. Thanks.
I took the question at face value: The Dow is not a reflection of consumer buying power, economic growth or even the stock market as a whole -- it's just an index of 30 big, industrial stocks. So, yeah, comparing Dow 1929 and Dow 2008 requires a leap of faith. (Heck, it's not even composed of the same 30 big industrial stocks as it was in 1929.) But I think my numbers are solid.
One thing I think people should keep in mind when doing these comparisons is the fact that in 2008, thanks to 401(k) and other retirement plans, there are manhy more Americans with their future riding on the stock market compared to 1929. I really shudder to think what's going to happen to them if this market doesn't reverse itself quickly.
Eddie: Indeed. The most glaring factor here is that the same companies no longer comprise the DOW. I think it's still a useful metric for comparisons though, to get a general feel for what's going on.
I've talked to a bunch of older people lately who have their retirements 401k accounts. It's getting ugly. We're going to see a lot of seniors in need of good jobs soon. Those McDonalds jobs just ain't gonna cut it.
I think one of the biggest challenges, and opportunities, the next President will have is how to provide good paying, feasible work for seniors who can't retire. Labor that will help boost the domestic economy, but isn't physically intensive.
No mean feat, that.
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