Speed Screed: Recession and the Dow

I’m getting pretty tired of the idea of “Main Street vs. Wall Street.” Frankly, most towns cannot simply be collapsed into main streets at this point and it rather cloyingly calls to a bygone era of 50’s small towns. I realize it’s just a turn of phrase, but as has been shown from Wall Street’s heavy investment in (and unscrupulously messing around with) real estate that these two supposedly different or even diametrically opposed economic areas of America are in fact fairly intertwined.

Especially with credit. While I was loathe to start using credit cards (and I ended up spending more than I ought to have and shunted the balance of my old card onto a low fixed APR card to pay it off) the average responsible person who has a card, but uses it to smooth out cash flow and almost invariably pays it off on time is a rarity. We’ve had a false standard of living recently because people would use credit they couldn’t afford to maintain their lifestyles as wages stagnated. So when credit becomes difficult to obtain, it’s recession time because we’re not buoyed up by somebody else’s money. This is an even bigger problem for smaller businesses. Small businesses actually make up a rather large part of the employers in America, with something like 10-20% working for the megacorporations. Of course, many of them are not “small” per se, but smaller than a very large company. But businesses rely on credit more than individuals to get money to the right people. Cash flow is erratic for even the best of companies and they need to be able to get people paid on time, load up on materials or inventory before the end of the month, etc, etc. So credit suddenly becoming unavailable is devastating to many, many, many businesses.

So it’s looking like we’re heading into a real, honest-to-God recession here, and not one of those trendy little 4-year mini-recessions that are a simple part of the natural economic cycle. After all, the Dow Jones has been dropping, right? That’s got to be bad news. I mean the graph is going down! Down is bad!

The Dow is a somewhat useful measure of overall confidence in the market but it’s not the be-all, end-all of indices. It’s a weighted average of 30 select companies, with the most valuable stocks being weighted more heavily than the bottom ones, which also fudges the numbers a bit, generally making the dow worth more than the sum of its component stocks. Many economists would argue that it is not a very useful measure of the overall market beyond the sort of “blue-chip” stocks that generally represent people taking the long view when it comes to investing. No one ever mentioned what happened to the other indices, probably because it wouldn’t have made interesting news. Every newspaper loves a “crisis.” I’m getting tired of people bandying that about, too. It’s too pat. Let’s spend our time finding solutions, instead of continually crying about how bad things are, and are going to get.