Remembering ourselves into depression
Posted on February 24, 2009 by Richard Beddard
Filed Under Investing, Markets |
A contagious crises spread on the Internet
Dwelling on previous bear markets like this (click chart for full-sized version):
And this (click again 
):
And the rush to chart, write about, and produce TV documentaries of past crises is symptomatic of a bear market mindset, I fear.
In Animal Spirits, Akerloff and Shiller say recessions are the result of a collapse of confidence, often associated with remembered stories of economic failure. There was no obvious trigger for the depression of the 1890’s, the say, but a fall in the government’s gold reserves made people nervous:
The growth of this feeling took the form of increasing talk about, and thus social memory of, the stories that almost anyone at that time could easily recite, but in 1893 they suddenly came back into the public imagination. The banking panic then exploded as a social epidemic, as people reacted to the observation of long lines at banks – responding to the fears of others by retelling the stories of past banking panics.
If so, we seem to be at a critical juncture. The crisis of 2007-09 is already on a par with 1937-38 and 1973-74, at least in stock market terms, and the only memory left from last century is the Wall Street Crash from 1929-32, followed by the Great Depression.
If the 1930’s becomes our reference point, it’s a long way down.
Hat tips: Todd Sullivan, and Tim Huckle (by email, source)
Update: Robert Shiller in the New York Times - Can talk of a depression lead to one?
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