Imagine the unimaginable. The Dow Jones industrial average at Zero. Not ten thousand Zero. It almost happened in 1987, it's not going to happen now, but a free fall is not out of the question.
more after the fold.
Technically, the closest to zero the Dow Jones Industrials was during the summer of 1896 when the index hit its all-time low of 28.48. Grover Cleveland was president back then and the US was in a worse depression than in the 1930s. The Democrats backing the anti-Cleveland (William Jennings Bryan) didn't save them from getting totally trashed.
There would be another panic in 1907, but JP Morgan used his personal wealth to save the situation. The worst crash was right after the start of World War One in 1914. As soon as th guns of August started shooting, the government banned stock trading for four months, and when the finally were allowed to start up again on December 12th, the index lost almost a quarter of it's value.
There was another depression in 1920-21, and another major crash in 1928, but the recoveries from them were quite rapid. 1928 was a blip, and the market was stronger than ever. Then there was Black Tuesday, October 28, 1929. The market fell 12% in one day, but it was the next day that was really important. On October 29th, the market fell almost as much as the day before, and that was the beginning of the end. The market fell and fell until the middle of November. (a "false recovery" lasted until the middle of 1930, but the rest of the economy was collapsing into depression anyway).
I had just turned thirty in October of 1987, and was working part time as a messenger as my latest book had tanked and I needed the bucks. There was lots of work in the Wall street area (the internet hadn't really taken off, and there was lots of paper shuffling around) and people were uneasy. Various people I knew were getting their asses out of the market, and everything was tottering for about a week. The Dow was down about a hundred points early in the day of October 19th and pretty much stayed there. I was listening to various people mentioning the year 1929. "Could it be another 1929?" "This is like 1929." Now due to percentages and the market's price inflation, a thirty point drop in 1980 wasn't the same thing as that of half a century before, 30-40 point drops were becoming more common and were generally followed by recoveries almost as large. Hundred point drops were rare, but not unheard of. They let us call it quits early, and I visited my Uncle (who's still alive at 90), and he and some of his friends were watching the market on TV and a primitive computer. It was still holding at minus 100 on the day. I went home. When I got there, I turned on the financial channel (an ancestor of CNBC), and in the last half hour, the bottom fell out of the World. Four hundred points in less than 20 minutes.
For the first time in ages, the Stock Market was the headline story on the evening news. The next day, I called in sick and went to Merril Lynch to watch what was going on. The market zoomed up a couple of hundred points then started falling again. I asked someone if he though it would go down another five hundred points, he reply was "maybe, but it can't get fall much more, pretty soon you're going to hit zero." I thought about that.
Well, it nearly did, but the leadership of the markets and Greenspan, Reagan and Baker managed to stablize the situation and saved the nation from genuine catistrophy. It took almost a year to get back where the DJI was on October 18, 1987.
The market crashed about once a year from 1998 to 2001 and always recovered. But after the '01 crash (I really took a bath on that one and have put all my money in bonds since then), the market has gone sideways. It didn't recover for another five years and on a percentage basis hasn't yet.
The question as to the aftermath of yesterday's crash, which isn't as bad as it might have been, is what's going to happen today? The signs look like there might be some profit-taking, a so-called "dead cat bounce" in the morning, but the systemic damage done by the administration to the markets might make this a temporary phenomenon. They say Bernanke and the fed might lower interest rates, but how low is enough. Japan went to zero interest rates and it didn't help all that much.
This is the big day. If they blow it now, it may indeed be a free fall.