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Consumer confidence is at record lows because the public has lost faith in their institutions. The fear-mongering and the deception of the last 8 years have taken their toll; the pessimism is palpable. But market-based systems require confidence to function properly, otherwise people withdraw their savings and hoard their money. And that is exactly what is happening. We have entered a period of extreme risk aversion where there's been a steady run on the financial system; investors have pulled their money out of commercial paper, structured investments, money markets, corporate bonds, and securities. The markets are in a state of panic. Investors are moving into safe havens like Treasurys while consumers are cutting back on spending. The whole system is contracting. The same thing happened during the Great Depression. The similarities are stunning. In Jason Zweig's "1931 and 2008: Will Market history Repeat Itself" the author says:
"Over the two weeks ended Nov. 20, 2008, the Dow Jones Industrial Average fell 16%. Over the two weeks ended Nov. 20, 1931, the Dow fell 16%.
If you think that is scary, consider this: In the final five weeks of 1931, the Dow fell 20% further. Then it went on to lose yet another 47% before it finally hit rock-bottom on July 8, 1932.
