We are living through a financial crisis reminiscent of the crash of 1929. Then, as now, a long rally on the stock market ended with a sudden collapse of prices. There were days when it seemed that the plunge in prices was over but always the market resumed with further falls, on and on until reaching the low point during the mid 1930s. By that time a full blown slump with mass unemployment had set in.
I have been trying analyse why the huge fluctuations on the markets cause me such uneasy feelings, and put this in the context of working and travelling to work normally. The falls in the markets will probably hit me a lot in terms of reducing the value of pensions, yet it may be some years before I do retire and things could have recovered by then. The huge uncertainties in the mortgage and banking markets don't really affect me at all. But if we do move into a real slump then my complacent idea about working as usual may be destroyed. I think this is the most worrying aspect - once people start talking about "belt-tightening" and companies begin cutting investment then the level of economic activity will fall and a spiral of increasing unemployment and reducing spending may set in.
I studied all this many years ago during my economics degree. Clearly world governments have learned lessons from the 1930s and by propping up banks and maintaining credit, have taken essential steps to preventing the drift into slump. Other steps remain, notably cutting interest rates and perhaps "public works" - efforts to keep expenditure going so as to stop the deflationary spiral.
Keynes wrote about the "animal spirits" of investors, meaning the gut feelings that underlie the decisions to invest. Those spirits must be pretty low right now. They must not been permitted to fall further. In the end a slump can be avoided if people believe in the economic future. Some of this is generated by positive leadership. Most must be based on evidence that things will indeed improve. I guess that the lack of this evidence is one of the big things that is worrying me.
Future historians may care to note that there is really no sense of all this on the daily commute into London. Nobody is begging on the tubes or even in the streets by the stations. There are no fire-sales. The ragged men with trays of matches slung round their neck, so beloved of cartoonists like Bill Tidy and Larry, are biding their time. One straw in the wind is that the volume of junk mail for credit cards and loans has dried up, as has the advertising for such products.
No pithy conclusion to today's piece. The ponderings will continue.