Scrooge and Bob Cratchit, from A Christmas Carol by Charles Dickens, illustrated by John Leech in 1843

As in earlier deflationary bear periods, the stock markets react with sporadic rallies every once in a while. Unlike the reformed Scrooge, who shared his good spirits and bounty with those around him, our markets's good spirits are more than a bit premature.The last two days have brought lots of bad economic and financial news. Some people will this as a contrary indicator of a market rally to come, but when you consider the depth of the debt load to be worked off in the US, however, I think that the negative news is just one more step in a long and bumpy downward slope. The headlines reveal deep underlying problems that will take some time to work out. It seems very unlikely that the downward spiral will end soon.Consumers continue to be crushed by high debt and unemployment. For the month of January, US credit card delinquencies hit a record high, payments at least 60 days late rose almost half a percentage point last month to a record 3.75 per cent, and credit card lenders wrote off loans to delinquent borrowers at nearly record levels.It is highly likely that US consumers will be pinched harder in coming months as unemployment continues to increase. First-time claims for state unemployment insurance rose to 626,000 during the last week in January, which was the highest since October 1982. The number of people remaining on the jobless benefit rolls hit a record high.Economic output continues to decline. U.S. factory orders fell for a record fifth straight month in December. The Commerce Department announced that orders dropped by 3.9 percent during the month, an even bigger decline than the 3 percent that economists had predicted. Not only is domestic demand falling, but exports are falling due to the worldwide downturn.Stock markets are declining overseas, and the risk of further declines is high. Nouriel Roubini predicted that Russian and eastern European equities may fall further because earnings and other fundamental measures mean little in the current economic turmoil. Russia's RTS index fell 72 percent and the NTX index of central and east European stocks fell 57 percent in 2008. However, during an interview in Moscow, Roubini warned that “In market dynamics, prices can move far below what fundamentals justify.” He also warned: “There is still a massive downside for equities in the region.”The bad news from Britain continues. The National Institute of Economic and Social Research forecasts that the sharpest plunge in consumer spending since the Second World War will drive Britain this year into its deepest economic slump since World War II. Consumer spending this year is set to plummet by 3.8 per cent. This is twice the previous record annual drop of 1.6 per cent in 1991, and is in contrast to an average increase of 3.5 percent annually over the past decade.President Obama has attached a great deal of urgency to the economic stimulus legislation that is working through Congress, which seems fitting at a time when the economic downturn is assuming threatening proportions and the news worsens daily. Speaking out in reaction to the Republican opposition that threatens to stall the bill, the President warned that failure to act quickly "will turn crisis into a catastrophe and guarantee a longer recession." Not everyone agrees that a stimulus will reduce the severity of the downturn, but the economic situation is indeed getting bad.

The Collapse Continues

News like this will continue for some months to come. The direction of the markets is probably down too.

Poster for the "War of Wealth" by Charles Turner Dazey, a play inspired by the Panic of 1893, opened February 10, 1896.