A Word of Clarification
My blog post below has struck a chord with some of you. As a Vanguard blogger, I am charged with sharing my personal and professional perspectives on issues facing investors. The post, prompted by a discussion I had with a fellow passenger during a recent flight, represents my understanding of how the federal economic stimulus programs might be viewed historically. The focus is on certain macroeconomic principles and is not intended to endorse specific political leaders or parties. More importantly, my views are my own and not necessarily those of Vanguard, and they do not influence how the company manages our clients’ assets. I regret if some readers have interpreted the posting as representing a partisan point of view. Steve
Someone asked me recently about the main federal economic stimulus programs and how they might be viewed historically.
My response was simple: They will be viewed as the tools that help us avoid Depression 2.0. Read more »
Mark Hulbert (with some help from Jeremy Siegel) does a nice job correcting the record about how long it took for stock market investors to “recover” from the Great Depression.
While some are quick to point out that it wasn’t until 1954 that the Dow closed above its 1929 high, Hulbert argues that, in fact, adjusted for inflation and dividends, the Dow got back to its ’29 level after 8 years—which is still a long time, but not forever.
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Is it the 1930s all over again? If that were true, it would be one very good reason to panic, sell everything, and put your money in a mattress. But it turns out that the comparisons between today and the Great Depression are (mostly) bunk.
You should know by now (if you’ve been reading the papers or the blogs) that the stock market crash of 1929 did not cause the Great Depression. Instead, the Depression came about because of a flawed economic response in Washington. As the economy cooled in the early 1930s, rising bank failures led to sharp contraction in credit. Congress balanced the budget and imposed trade tariffs. The result was a downward spiral in the economy and massive unemployment. The economic collapse led to the failure of the financial system—notably, a surge in bank failures and collapsing stock prices.
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