Imperial Valley Press

The financial markets and U.S.

- ARTHUR CYR Arthur I. Cyr is author of “After the Cold War” (NYU Press and Palgrave/ Macmillan). Contact acyr@carthage. edu.

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 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 in yet a traditiona­l recession, and in 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, 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 September 3, U.S. stocks lost 25% 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 experience. 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 by 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, sustained government interventi­on reestablis­hed financial stability and supported recovery.

Commercial banks became more regulated, with capital requiremen­ts raised as part of rescue. In 2010, the Dodd-Frank Act became law, including the important initiative of Paul Volcker to again separate commercial from investment banking.

Chairman Paul Volcker of the Federal Reserve defeated inflation in the early 1980s, and that example informs current efforts. Traditiona­lly, the money supply and interest rates have been principal tools.

The Fed today controls a relatively small share of total dollars. At the same time, the global reserve role of the dollar facilitate­s ongoing private investment worldwide. Most important, markets today are generally more fluid and robust.

Finance is one component of our complex economy. Money is a universall­y accepted means of exchange, but tangible value results from the work of enormous, diverse arrays of people.

This is what we Americans should remember: First, the U.S has the most productive economy in the world. Our gross domestic product has doubled about every two decades since 1940.

Second, as a citizen, be active. Serious, sustained public oversight of financial activities is essential.

Third, as an investor, do homework. One resource is the classic book by Dodd and Graham, respective­ly a professor and a Wall Street genius, first published in 1934, regularly revised.

The basic truths of investing remain unchanged.

Also unchanged is the core importance of committed, dedicated workers. Current high demand for employees underscore­s the truth of this observatio­n.

Learn More: Benjamin Graham and David Dodd, “Security Analysis.”

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