Financial markets and US

• Published date: 06 March 2023
• Publication title: The Korea Times

There is continuing bad news about bonds, property, stocks and other investments along with concern about inflation. Everything seems to be going down, except inflation, which is rising.

Fed Chairman Jerome Powell and his colleagues at the Federal Reserve Board of the United States continue to give priority to fighting inflation. Interest rates are going up, and a lot of economic activity is slowing.

However, stock declines are concentrated in volatile technology sectors. Higher interest rates favor savers and long-term investors. The crash of crypto, which is essentially gambling, is stabilizing.

Labor markets remain tight. We are not yet in a traditional recession, and as a consequence, working people may now be reversing their long-term decline in relative real income.

The global financial crash of 2007-8 is instructive. However, a longer-term perspective gives more valuable context.

The Great Depression remains distinctively destructive. The 1929 stock market collapse proved to be the spark for a decade of extraordinary economic crises and human misery.

The stock market drop was sudden and steep. From the 381.17 peak on Sept. 3, U.S. stocks lost 25 percent of their value over two days.

November brought recovery, but that proved fleeting. Stocks drifted to the historic low of 41.22 in July 1932. During the height of the selling frenzy, they traded in volumes not reached again until the late 1960s.

Stocks did not return to the 1929 peak until the 1950s, in great contrast to more recent experiences. Public suspicion as well as hostility toward bankers defined American political life for decades.

At home and abroad, extremism flourished, including Adolf Hitler's Nazi Party in Germany. World War II followed.

After the 2007 financial crash, banks failed and others remained solvent only through emergency government support. The Federal Deposit Insurance Corporation, established during the Great Depression, proved up to the task of protecting individual depositors.

The 2008 bankruptcy of investment bank Lehman Brothers underscored the scale of the crisis. Nonetheless...