[A-List] McKillpop on crahses, Part 1

["bon moun" <sherrynstan@xxxxxxx>]

Posted: Sunday, July 13, 2003
By: Andrew McKillop
1929-style Stock Exchange crash likely this October 2003?
VHeadline.com petroleum industry commentarist Andrew McKillop writes: A
first definition and first warning is that (1) the writer has an
economics degree from a university (London UK) and (2) this tare or
handicap (an economics degree) is something he has lived with a long
time, and takes little account of (economics, that is).
The first definition is what 'likely' means. Likely, here, means
possible-to-probable.
What does 1929 "style" mean?  Now this is really important.
Since around 1870-90, stock market or bourse crashes (such as those of
1873, 1882-84, 1890-93, and 1900-03) have tended to get more
uncontrolled, longer and deeper ... measured by the loss of total
notional or fictional 'value.' But this brings in PPP or 'purchasing
power parity' corrections. How do you value an 1870 dollar against a
2003 dollar? Or a Reichen mark against a Renten mark, and a Deutschemark
of 2002 ? (Before they disappeared and were replaced by Euros)
None of this is easy. Bill Gates likes to say that, if technology
progress in automobiles had kept pace (he meant to say/ was comparable)
with technology progress in PCs, then a family auto of today which cost
$5,000 in 1979 would now cost $15 and do 150 miles-per-gallon.
But would those PC-style autos work like 'Windows'? First you turn the
motor on, push the 'Start' button, and only then you can turn it off ...
what could be more logical? Hey, wait a minute, the motor was already
running!
How do you compare a 1979 dollar with a 2003 dollar? Be careful! ...
January 2003 dollars, and June 2003 dollars, against Euros, are already
12%-15% different...
We can, however say that in 2003 dollars the 1929 crash wiped-off,
destroyed or made to disappear notional or paper 'value' estimated at
(according to authorities like J K Galbraith) about $1, 500 billion.
And we can say the 1987 bourse crash destroyed at least $2,400 billion
of notional 'value.'

And the 2000-02 crash annihilated about $6,000 billion of notional
'value.'
However, the essential factor is that the 1929 crash was very different
to and from the 1987 and 2000-02 crashes...
Why and how was the 1929 crash different?
After the 1929 crash, but more precisely after the 1929-31 sequence of
economic meltdown triggered by the bourse crash, there was no bounce
back or rebound in the Real Economy, on which the bourse machine feeds,
reflects, steers, plays with and pumps funds from.
That is, the 1929 crash transmitted through the various outer sheaths or
layers of the Real Economy, and impacted it. Through 1929-35 or 1929-36
in some countries of the "civilized world" there were unremitting falls
of activity in 'key sectors.'
The uncivilized world was however less than concerned by the event ...
it gained.  (A. Gunder Frank, S. Amin and suchlike will give you a
Marxist Economics spin on the related and unrelated sequences of
economic change governing metropole-colony relations). Simple facts and
figures show considerable economic growth in the 'colonial South' of the
1929-39 period.
The Real Economy impacted
We can take 'leading indicators' in any the rich-world countries of the
time. In the period of 1929-36 there were sheer and stark falls, for
example a fall in industrial production by 40-50%. A reduction in new
house starts by 60-70%. A reduction in cars manufactured and sold by
60-75%. A reduction in new steel laid and drawn (cables) by 60-75%. A
reduction in ships built and operated by 50-70%.
Depending on country and on reference dates, e.g. 1927 or 1928 against
1933, or e.g. 1925-28 average against 1931-34 average. Overall, through
1929-36, falls in activity/output were around 60%-90% by country and by
sector. Unemployment rates were up to 25-40%, not in Albania 2003 but
throughout Western Europe in 1933. The young reporter and writer George
Orwell wrote flowing tales of this massive misery decreed for and by
Liberal good management of the economy and defense of Strong Money.
Needless to say, food production didn't fall by 60-90%. Human beings
need to feed themselves, even when destroying notional or paper 'value'
and deciding not to work ... but there were 10-15% falls in food
produced, all the same.
An increasingly popular, tub-thumping set of politicians naturally
emerged and, very like the G.W. Bush regime ... but called Mussolini and
Hitler. These two leaders applied Keynesian economic recovery, the
Military Keynesian solution was found to yield big popular voting
support and very fast falls in unemployment through building weapons and
preparing for war. Both of these fully-voted, fully-democratic leaders
of the West had No Alternative but to crank up wars, the bigger the
better. Democracy has the word 'demos' as a stem ... it gives us Demonic
and Demagogic as well as Democracy.
OIL PRICES FELL, but we will get onto that subject in Parts 2 and 3
What matters is the following:
1929 impacted the Real Economy. The bourse crashed, and so did the Real
Economy. The crash, which was fiercest through about Nov. 1929-Nov.
1930, with a rapid loss of at least 50% of initial paper 'value',
trimmed paper values on all civilized world bourses by up to 65-75%, and
started with a huge cut (at least 30%) in just the first week or two,
rapidly achieving a 50%+ fall in notional or paper 'value' (that is
notional capitalization).
Unlike 1987, which also had huge and fast cuts in the notional 'value'
pile in just a week, the 1929 crash kept on keeping on. It steamrolled
into the Real Economy, creating an unstoppable reduction ... contraction
... of economic activity. Neither the paper economy bourse, or the real
economy bounced back. They went down, and stayed down.
None of that happened in 1987 and 2000-02, which of course brings up the
simple question: Why ?
Let us terminate this first part by a few considerations of what would
constitute the initial part of a 1929-style crash in October 2003. The
lead bourse would of course be the NYSE, as in 1929, 1987 or 2000-02.
As noted by Mark Jones in 'Battle of the Titans' ('The Final Energy
Crisis', Pluto Press, forthcoming):  In purely cyclic terms, bourse
dynamics might set a period of over 15 years before the DJ index claws
back to 10,000 again; through 2002 some US stock exchange analysts have
waved the specter of the Dow plunging to under 400 points and staying
there 'for some years'. In fact, any protracted bourse crisis on Wall
street with the index hitting even 4000 points will trigger panic
equivalent to the 1929 crash, the post 1929 collapse of the fantasy
paper economy entraining a 6-year, world-wide depression of the real
economy. Optimists argue that even in the event of a paper economy
meltdown this will not harm the real economy because mistakes made in
the 1930s will not be repeated. That is: protectionism, futile and
counter-productive attempts to balance budgets, monetarist rivalries,
the deflationary gold standard, etc.
If the DJIA index fell to 4000 from its present 9100-odd, this would
represent a 50%+ loss. If at least 30%-40% was slashed in a single week,
this would constitute a '1929-style' (and 1987-style) bourse crash.
Whether this would go on to trigger a Real Economy crash, that is
1929-36 style contraction, is another question that is discussed below.
1929-style Stock Exchange crash likely this October 2003? - Part 2