An antidote to overheated rhetoric.

I recently posted the text of an email I sent to my clients about the current financial crisis. Here are excerpts from another I sent just over a week later.

Good morning, clients and friends.

I've spoken and exchanged emails with many of you about the current state of the economy and the financial markets. When the Dow falls by 777 points in one day (isn't that a memorable number?), it gets our attention. But I want to assure you that it's still no reason to change our long-run outlook.

And there's more encouraging news from some quite reliable sources this week.

Well, actually, it depends on your definition of "encouraging." How's this: the outlook is NOT for another Great Depression, only for a recession. Put differently, we might need to be prepared for a broken nose, but not a life-threatening concussion.

Tuesday's The Plain Dealer (Cleveland, Ohio) ran a piece on page C2 entitled "No threat, no risk of a Depression, economists argue." Rather than any comparisons to the G.D., "A better reference point ... is the recession of the early 1980s."

Admittedly, this was not a happy time, with unemployment at close to 11%. But during the G.D., unemployment was more than twice that rate. And in the 1930s, if the breadwinner in your house was out of work, it usually meant no one in the house was bringing in any substantial income. The rise of two-income households mitigates the effects of rising unemployment. Being out of work is still bad, but the situation is often far less scary than during the G.D.

And who are these economists assuring us that comparisons with the G.D. are well out of bounds? The article cites:

• Erik Hurst, economics professor at University of Chicago's Graduate School of Business.
• Kenneth Rogoff, economics professor at Harvard University.
• James Galbraith, a University of Texas economist (son of the famed economist John Kenneth Galbraith).

You can see the article at http://www.cleveland.com/plaindealer/stories/index.ssf?/base/business-8/1222763614174910.xml&coll=2. (The PD website moves these articles around from time to time, so if you're interested, look soon.)

Would a recession be fun? No. But the financial system looks nothing like the system that was in place in 1929. That's why comparing the current situation to the G.D. is, in my view, unrealistic, and even irresponsible. But I suppose such an inflammatory comparison is a good way to get on television.

(You've probably noticed, I'm calling it the G.D., not spelling it out. I guess you could say it's a modest attempt to de-legitimize comparing of our current situation with those very different times.)

You may have heard me say it enough times that you can repeat it verbatim: what's happening in the economy in the short term shouldn't alter your plan. Change your plan only if something in your life has changed to alter your goals.

In the meantime, feel free to call me with any questions, concerns, or curiosity you may have about the economic situation and how it will affect you.

Have a good weekend,

Ken.