Joe Nocera is Worried about the Economy

I don’t see how you can avoid a certain amount of gloom given the week we’ve just had ”” and its implications for the future. Yes, things were a little less crazy on Thursday and Friday, but the early part of the week was just awful. On Monday, our markets were closed for Martin Luther King’s Birthday, but all over the world, stock markets were in free fall. On Tuesday, the Dow Jones industrial average dropped 464 points at the open, and closed with a loss of 128 points. On Wednesday we had the so-called whiplash rally ”” from a 300-point morning deficit, the market swung to a nearly 300-point gain. Even with the gain, a 600-point swing doesn’t exactly inspire confidence. It inspires fear.

Meanwhile, the Federal Reserve announced an emergency rate drop of three-quarters of a point, in a move that smelled an awful lot like panic. Economists were debating whether the economy was nearing a recession ”” or was already in one. The New York State Insurance superintendent sought a bailout plan for the major bond insurers, fearing disaster if they failed. Housing prices continued to drop. Further write-downs by the major financial institutions seemed all but certain. All the things that the bears have been predicting were coming to pass, and it was hard to know when ”” or how ”” it would end.

“This is nothing like I’ve ever seen,” said Peter Bernstein, the author and market sage ”” and a man who has pretty much seen it all. Normally, he said, bear markets set in when stock values get out of hand, as was the case when the tech bubble burst in 2000. But not this time. The market is in trouble because the larger economy is in trouble. “The collapse of credit is what is driving this recession,” he said.

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