What happens if or rather when the stock market melts down for a whole generation again?

Stocks have been taking a bit of a beating lately, which reminds me of a theory I have, which is that it was a huge boon to the plutocracy to convert essentially all non-government and quite a few government pension plans from a defined benefit to a defined contribution model. The obvious advantage of this from the perspective of the Lords of Capital is that it left their employees completely at the whim of the financial markets in terms of funding their retirements. The less obvious benefit is that it converted tens of millions of people into mini (very very mini) Warren Buffets, who were thereby incentivized to identify with the rentier class rather than with people who work — I mean real work not fake work — for a living.

Now not coincidentally this change took place during the first half of what has been for 40 years now largely though not exclusively a bull market. Stocks only went up, supposedly, so what was wrong with everybody being a super-mini Warren Buffett anyway?

This is what’s wrong:

S & P 500 stock index, inflation adjusted:

September 1929: 509.58

September 1932: 95.37

When did it get back to its 1929 level in real terms?

March 1956.

Now that was a long time ago, so let’s look at a period that is a whole lot closer to us today:

October 1965: 852.20

July 1982: 321.06

Uh oh.

The S&P, which is much more broadly based than the Dow and therefore a better reflection of the overall state of the equities markets, didn’t get back to its 1965 levels, after adjusting for inflation, until 1992, with the exception of a single month in the magical year of 1968.

The difference between those previous periods and today is that almost everybody in the middle class and above now has their retirement tied up in equities, so a third 27-year hiccup in stock values would be kind of “disruptive,” as our Silicon Valley Masters of the Universe would say.

And iff you really want to start drinking early, take a look at Japanese stocks since the late 1980s.