Confidence and the Role of CPI and Tbills
Chart
Dow Jones Industrial Average vs Inflation and Interest Rates
5.5 years--August 31, 2007--February 28, 2013
which parallel
5.5 years--July 2, 1937--December 31, 1942
Weekly
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This chart updates the original article dealing with the current rolling crises and their correlation(s) with the 'Great Depression'. It tells what is being measured and why--here.
The original compares today's crisis years with 1929-1943, a fourteen-year span. They parallel today, with some differences that suggest that today's crisis is worse than the 1930s. This corroborates well with Eichengreen and O'Rourke's elegant and detailed, recent chart study of the Great Depession.¹
But their compare-track runs only from June 1929 to the summer of 1933, less than five years. This neglects the last ten, most telling years--especially those containing 1937 to 1942. Those years depict the prelude profile for an extended current and forthcoming portrait of the run from 2008 to 2013.
Today, the present rolling crisis is on track, deeper than its predecessor, and a month or two behind schedule.
Remedies abound. New ones every week, lately tending toward super-governance and uber-regulators concentrating single global oversight and salutary powers into one department superseding all others.
These, and all other 'remedies', well meaning and somewhat frantic, address symptoms, not cause. All aspects of the ongoing financial and economic crisis are interrelated, sequential effects of one another with internal feedback loops. None ask, what is the root cause?
To answer that, you must look outside the boxes of finance and economics. These are purely human constructs totally dependent on public and private confidence. Confidence is the master binding force of every financial and economic event, structure, and transaction. None can occur without it.
Its presence and absence fluctuates in the individual and mass human psyche, swinging to and fro, in short periods and long, like an immense pendulum. Confidence is pure emotion, beyond the reach of reason. Reason provides input, but emotion makes the judgement and decision and impels the action or withholds it. Reason proposes, emotion disposes.
It would seem reasonable then to pursue and propose an etiology of Confidence--a phenomenon of psychology.
Since the correlations of financial and economic series are incestuous and circular, they cannot measure much besides sequential, superficially causal relationships, as the world is doing now. One must look outside these series to see if perhaps the materia prima of other scientific disciplines may be profoundly impacting human psychology. The relevant ones are biology, physiology, neurobiology, and solar-system mechanics (!),² drawing on approaches perhaps already laid out in complexity theory and 'Consilience'.³
But where are the bright people with resources looking into these relationships? Maybe California, Massachusetts, Texas, or Washington, Europe, or Asia.
Help, we pray, is on the way.
Notes. Following the 1932 bottom, the stock market thrashed about for another ten years. From its July low in 1932, it skyrocketed +382% to March 1937 then plunged again -53% to April 1942, its final throes, marking the end of the completion of the Great Depression. America's entry into World War II was a factor, but wars are times of high, widespread confidence. Belligerents do not enter thereinto unless they expect to win.
Zero value is what this article is worth for the purpose of what to do Monday morning. But for traders it gives a context of direction; for investors, when to invest.
¹ Eichengreen, B. and K.H. O’Rourke. 2009. “A Tale of Two
Depressions.” In progress.
http://www.voxeu.org/index.php?q=node/3421
Barry Eichengreen is Professor of Economics and Political Science at the University of California, Berkeley, and Kevin O'Rourke is Professor of Economics at Trinity College Dublin.
² Examples here (fractional circadian) and here (generational, epochal)
³ E.O.Wilson and Consilience
See also how dysconfidence affects leading thinkers and doers in our society even now.
Written
6/29 - 7/5/2009
Posted
7/6/2009 11:15 p.m. ET
Updated
9/24/2009 4:18 p.m. ET
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\CRASH\MNTH1789\SN150T56
SN210H 5-20-1939 9-27-2009 240 2-14-1942 *10-17-2012
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2009 The 2000 Corporation.
All Rights Reserved.
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