The latest market shifts confirm that to date in the present financial crisis the fall in US share prices continues to be at a post-1929 rate – see Figure 1.
Last Friday, 27 February, was the 352nd trading day since the all time high of the Dow Jones Industrial Average on 9 October 2007. Since its peak the Dow has declined by 50.1%. On the 352nd trading day following its 1929 high point the Dow had declined by 55.6%. The difference between the falls is within the range of short term fluctuations. Overall the rate of decline of US share prices since October 2007 is tracking the 1929 descent.
As may be seen from Figure 2 the current decline of share prices is far more rapid and deep than either of the other two major falls in the 20th century – that following the oil price increase of 1973 or following the implosion of the dot com share bubble in 2000. These trends confirm again that the only relevant scale of comparison for the current decline of US share prices is with 1929 itself.
The only fundamental difference between the current decline and that of 1929, so far, is the duration of the fall. After 1929 it took the Dow Jones 713 trading days to reach its bottom – the trough being on 8 July 1932 by which time the Dow it had lost 89.2% of its value. It remains to be seen for how long the current decline will continue. However although the duration of the drop is at least as yet not as great as after 1929 it is as rapid.
While the financial collapse is therefore genuinely on a scale to be compared to 1929, the overall declines registered in the productive economy are still far smaller than the post-1929 falls. However the declines in the productive economy have just commenced and data is still coming in. Some drops, such as in trade, are approaching scales seen post-1929. However the decline in US GDP in the 4th quarter, now revised downwards to an annualised decline of 6.2 per cent, is about two thirds of the 9.4 per cent drop in US GDP seen between 1929 and 1930 – however the rate of decline is accelerating.
While quite sufficient information is now in to make clear that the current financial crisis is only comparable to 1929, far exceeding the shifts seen in a normal recession, further data is still required to see whether it will be meaningful to compared the fall in production to that after 1929 or not.