The Federal Reserve Board’s Open Market Committee released the minutes of its October 28-29 meeting, today, in which some members raise the specter of economic depression extending more than 4 consecutive quarters. The report calls the present financial mess the worst in more than half a century, carefully avoiding direct references to the Great Depression.
Wall Street responded with 427 point (5.16 percent) collapse, with Citigroup leading financial stocks to a 10 percent crash. Citigroup lost 25 percent of its value today.
Most economists consider a depression more than 1 year of negative GDP growth. The last depression in the United States was the Great Depression of 1930 through 1942. Only increased wartime production ended that economic chaos.
Fed Has Been Overly Optimistic
The Wall Street Journal (subscription required) notes that in recent meetings, the Fed has underestimated the economy’s weaknesses, which could mean unemployment, bankruptcies, and negative growth could get far worse than today’s report suggests:
* The Fed downgraded its previous expectations for GDP growth for 2008 after significantly over-estimating 2008 growth in its August meeting** The Fed downgraded its 2009 growth estimate from greater than 2 percent to -0.2 to 1 percent** The Fed raised it unemployment forecast to 6.5 percent, even though unemployment is already above 6.5. In August, they predicted 5.5 to 5.7 percent unemployment
Allahpundit has a poll asking where the market will stand on 1/1/2009. I picked 6,000-6,999. I expect the DJIA to reach and hold 6,900 by Demember through mid-2010, trading in a range of +400 to -200 points.
Gateway Pundit notes that this is the largest post-election sell-off in history.
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