Since the Dow Jones is sinking an extreme amount is there any reason to worry of depression?

Question

Since the Dow Jones is sinking an extreme amount is there any reason to worry of another great depression coming to America?

Answer 1

The Great Depression was not caused by the stock market crashed, rather both the crash and the Depression had the same cause. In a sense, the market crash signaled the beginning of the Depression but no one knew it yet.

Both were caused by the gold standard and really both were triggered by World War I fifteen years earlier. World War I disrupted the economic contracts between nations forcing a suspension of the gold standard globally. When it was resumed, the contracts which supported it had of course vanished. By forcing the price of money back to the pre-WWI level but without the social forces in place, they set in motion a global collapse that took over a decade to finally happen.

The real estate bubble is far more threatening to the economy. Because prices are not falling far enough, houses are not selling. Whenever prices become rigid you are at substantial risk of a recession or a depression. A recession is a reduction of business activity. A depression is a reduction in business activity caused by persistent falling prices in the goods markets. Instead of having inflation you have deflation and goods become less and less expensive each year. Of course business profits then fall to zero. This creates a situation where an employer is better off closed with their money in a savings account than producing goods. This lays off people, which reduces prices further, which then closes even more businesses and so forth until activity falls to a very low level.

Answer 2

Only if you want to. I don't like the downward movement of the stocks, but, that's life. They'll go back up too, as always. Just stay in it for the long run, and you'll do fine. God Bless you.