Stock indexes around the world are reflecting the same pessimism -- the Nikkei index in Tokyo also dropped below 8,000 -- as the familiar term "R and D" acquired a new and ominous definition: It's no longer just "research and development"; now it also stands for "recession and deflation."
Financial companies, which have received U.S. government help, were hard hit, as were automakers, who are begging for government help but apparently are not groveling enough before Congress. It didn't help that the report from a recent Federal Reserve meeting lowered economic expectations and hinted at additional interest rate reductions.
The losses may be paper but the assets are hefty -- the Standard & Poor's 500 has lost about $6.7 trillion -- trillion with a "t" -- since the heady days of October 2007, and it has dropped 20 percent since the U.S. election victory of Barack Obama on Nov. 4.
Even Obama economic adviser Warren Buffett's Berkshire Hathaway stock is being hit. On Wednesday it lost 12 percent -- $11,500 -- to $84,000 a share.
There is now a group leading prayers in front of the U.S. Treasury building beside the White House trying to get divine help to halt foreclosures. But so far there has been no sign that God will step in to directly help the world and the U.S. economy.
Neither the $700 billion bailout plan of U.S. Treasury Secretary Henry "Hank" Paulson nor the meeting of the Group of 20 leaders of major nations in Washington last weekend did anything to slow, let alone halt or reverse, the decline. The G20 predictably came up with no hard and fast plan of action. As we cautioned in these columns before their meeting, it was virtually certain that they would fail to do so.
Loose talk that the G20 would start setting up a "Bretton Woods II" to establish a new global financial structure, as the 1944 Bretton Woods conference did, proved to be pie in the sky.
In 1944 the original Bretton Woods structure was largely a coherent creation by liberal New Deal economists and officials of Franklin Roosevelt's World War II administration with significant input from British economists, most notably John Maynard Keynes. It was a diktat imposed by the U.S. government and its closest ally and backed by the unprecedented industrial, financial, energy and trading global superiority of the United States over the rest of the world.
By contrast, the G20 meeting was a ramshackle gathering of 20 national leaders with conflicting interests and priorities who could agree on detailed proposals over literally nothing.
Further, no such gathering has ever had any significant positive impact on any previous international global crisis, as we warned in these columns at the time.
The G20 summit, more than anything else, resembled the rambling and futile World Economic Recovery Conference the British chancellor of the Exchequer hosted in London in spring 1933. The very first foreign policy act of Franklin D. Roosevelt after he was inaugurated as president in March 1933 was to unilaterally pull the United States out of that conference and concentrate on domestic measures instead.
Unfortunately, that option is not open to either lame duck President George W. Bush or still powerless President-elect Barack Obama because the United States today is more dependent on foreign investment and the ability and willingness of foreign banks, especially the state central banks of China and Japan, to hold increasingly depreciating U.S. dollars than any other major industrialized nation in modern history.
The bigger the bailouts announced by Washington, the more the dollar will depreciate in value, as even more greenbacks are printed without the financial assets to support them. The more Washington and other governments step in to try to directly shore up the markets, the worse this fundamental problem will get.
Paulson has said the $700 billion bailout/rescue plan is beginning to loosen the credit strings and therefore is helping to ease the crisis. In the very short term that may be the case, but the bailout is also exacerbating the underlying problem by putting even more stress on the U.S. government's exceptionally exposed financial situation.
Also, Paulson's personal credibility with the U.S. and global markets is now worse than zero: They plunge every time he tries to make a reassuring statement.
The last time the Dow touched 8,000, apparently automatic trading triggers were hit and the index bounced. In the short term, it is possible this could happen. But it seems unlikely to reverse the overall seismic slide of the market.
There already have been a number of hopeful, even spectacular rallies on Wall Street since the crisis broke with the Lehman Brothers collapse in September. But every one of them was quickly obliterated by new declines. That was also exactly the same pattern of volatility but overall downward decline on the New York Stock Exchange throughout 1930 and 1931 as well.
It would be great to see a live cat bounce above 8,000 that will stick. But no one should bet against the slide continuing.