One Important Reason This Crash Is Different From 2008

The stock market has crashed back down to 1998 levels (SP 500 off 6.6 per cent yesterday).  The velocity of the collapse has people talking about whether this will be like 2008 all over again.

I don’t think that it can be.

The Collapse of 2008 was a huge psychological blow to a lot of Americans who’d come to think of themselves as smarter than average, as “winners”, and as savvy and sophisticated.

A friend of mine who had made some decent money between the mid-1990s and 2008 said that he had lost his confidence and, though he had not lost his fortune, “did not feel that he could lead a family.” He’s back on his feet now and concentrating 100 per cent of his work energy on a startup in China (“our sales in Europe and the U.S. have been disappointing, but strong demand from Chinese consumers has more than made up for it; the dollar and the euro are high, but there just aren’t that many of them left in the U.S. or Europe”).

Americans have made whatever psychological and financial adjustments they needed to make for a world in which U.S. stocks might be volatile and trending down, at least in real terms. Even if the market continues its downward trajectory, I am not expecting the same scale of problems with the real economy that we had in 2008-2009.

This post was published at the author’s blog.

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