Harvard Business Publishing

There is really only one question on everyone's mind these days: what the bleep is going on with the economy and when will things get better? This is not my area of expertise and the only answer I have is "I haven't a clue."

It's clear that the worldwide economy is under tremendous pressure these days stemming from a growing collection of problems. The brain can tell you a lot about how people react in these times. In fact, "react" is a very appropriate word. Our brains are reactionary. We take data, look for trends, and immediately jump to conclusions. That is how the mind works, for better or worse. In the best cases, it causes us to make quick decisions that lead to good judgment, as we learned from Malcolm Gladwell's recent book Blink.

In the worst cases, we tend to overreact in one direction or another. That is what leads to bubbles and stock market panics. Add to that the herd mentality of the "Wisdom of the crowds" or a "collective consciousness," and all out extremes take hold. For all the new books on the positives of crowd mentality, people often forget the original book by Yale Psychologist Irving Janis: That book was called GroupThink and it was about the downside of crowds, call it the "stupidity of crowds."

In times like these, the most important question to ask is whether this is a crisis or a crisis in confidence. In the short term, it really doesn't matter because both will cause a pronounced downturn. In the long-term however, a crisis in confidence corrects itself (and as we learned above, it usually overcorrects itself); a financial crisis does not.

The real question then is: does the change in the market and economy come down to investor confidence or is there a more fundamental problem?

Rather than pretend to be insightful this week, I figured I would share some stats and open up the discussion to others:

• Federal funds rates have all dropped significantly: US-- 1.5%; Canada--2.5%; Britain--4.5%; Europe--3.75%; Sweden--4.25%; Swiss--2.5%
• US Small Business earnings trend: -30%
• SBA loans have dropped by 30%
• Auto sales have plummeted to historic lows, nearly 31% for US manufactures and 24% for Asian brands.
• DOW Industrials decline 2008 to date: over 30% in twelve months, from roughly 14,165 to 9,244
• More than $12.4 trillion (yes, trillion) has been lost on the world stock markets in the last twelve months ($7 trillion alone came from US markets and $2 trillion of that evaporated from retirement plans). $4.6 trillion was lost in the past three weeks
• Iceland and Russia recently suspended their stock exchanges, and Iceland is rumored to be considering a "national bankruptcy."
• The US has put in place a bailout estimated at $800 billion and Britain just announced a $50 billion pound bailout.
• US retailers have laid off 760,000 people year to date (159,000 coming in September alone).
• An informal poll by Fortune of international CEOs shows that most expect a prolonged and extreme downturn lasting years.
• Numerous banks have either declared bankruptcy, needed financial bailouts, or have been sold for a small fraction of what they were worth less than 6 months ago, including bellwethers AIG, Bear Sterns, Merrill Lynch, and Lehman Brothers.
• Crude Oil prices are down to $88 per barrel but gas prices and many other commodities are still at historic highs.
• Inflation has been a growing concern throughout 2008 but is starting to subside as the world's overall economies slow.(Of course, Zimbabwe's inflation hit 231 million percent this month!)

Where do you think we are heading and when do you think it will end (or feel free to share important stats that I have missed)?