Economic crisis 'is as bad as they come'

By Carolyn Lochhead
Copy and posted by Yulun Hung

If 30 years of financial crises teach anything - in Scandinavia, Japan, other parts of Asia and Latin America - the worst is not over for the U.S. economy. But that may be the good news.

This time, a tightly interdependent world has entered a synchronized contraction. Pretty much everyone is in trouble, leaving the world without an engine.
"We are in economic terra incognita," said Joseph Grundfest, a finance professor at Stanford University and co-director of the Rock Center on Corporate Governance.
If the averages of previous crises hold, Americans can expect unemployment to reach 11 or 12 percent, housing prices nationally to drop 36 percent, stocks to lose more than half their value, and real output per capita to plunge 9.3 percent, according to economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University, who have tracked financial crises back to 14th century England.

"Certainly the averages themselves are pretty discouraging," said Reinhart. "Because this crisis is as bad as they come."

Pessimists observe that Japan's Nikkei stock index peaked around 39,000 in 1989 and two decades later is languishing around 7,500. Japan's real estate market still has not recovered after 17 years. The Dow Jones index did not rebound from the 1929 U.S. stock market crash until 1954.

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