Econopost

November 21 2008

Raw panic swept over the stock markets this week. Two days in a row, the Dow Jones Industrial index was down nearly 500 points each. This drop was matched by the other broad based indexes. After months of decline, the DJW5000 index is down 40% from its M3 money supply support level and 80% from its earlier high (see graph 10). Meanwhile, the federal deficit (graph 3) rose slightly to 10.6% of GDP, well above its maximum sustainable level of 5.86% of GDP. Furthermore, the federal debt to the penny (gr 4) rose to 73.5% of GDP, also well above its maximum sustainable level. The M3 money supply at 91.5% of GDP (gr 8) significantly exceeds its maximum sustainable level of 84.5% of GDP. Hence, the government is massively stimulating the economy to overcome the past leveraging losses in the housing market. Bye and bye, this stimulation should produce a huge rebound in stock values and market indexes. It will also reverse the rise in the dollar’s value (gr 12) and drive it to new lows never seen before.

In the midst of all the above economic distortions, employment continues to decline (gr 11). Employment will continue to decline until the economy reaches an equilibrium state. The lowest equilibrium state as indicated by the industrial capacity utilization rate of 76.4% suggests employment could reach a low of 38.5% of population, a loss of some 25 million jobs. Of course Congress would act with even more stimulation to avoid the wrath of that many unemployed constituents and the value of the dollar would fall much lower than it is today.

During the great depression of the 20^th century, initiated by the great stock market crash of 1929-1932, our economists and financial wizards knew very little about panics and what caused them. Today, we have Universal Economics, the econolibrium table, and the econoperformance table (below), to guide us in dealing with economic and stock market problems. This is truly a new deal for our economy, not the false “only thing we have to fear is fear itself” nonsense of the 1930s. The only thing we have to fear today is that obstinate Congressmen and economists will inject their own private political interests into the solution of our economic and stock market problems. Have a good Thanksgiving.