My teen sister: "What would it mean if the Dow dropped to zero?"

[Soupy Liberaltarian]

I didn't know how to definitively answer her.

Can you guys help me out?

[Veritas_et_Aequitas]

1. Short answer: We'd be fucked.

Longer answer: It would mean that 30 of the biggest/most successful companies in the US had all gone bankrupt (including Microsoft, McDonalds and Walmart). This scenario would only play out if the overall economy were in truly dire straits. Just how dire? Well, between 1930 and 32, the Dow lost 86% of its value, and history tells us how bad things got - wide-spread unemployment, credit crunches, and currency worries. If the Dow hit 0, it would not be coming back. We'd be facing the end of the economy as we know it.

Edited to include non-flip answer.

[leftofthedial]

44. ...or that the system they are part of had finally finished destroying itself--

that system being a process of turning things of value into imaginary "wealth," that is, the pump that sucks value away from the workers and moves it to the owners.

[Uben]

2. Basically it means......

....there is no market because there would be zero investments and those previous investments are worth nothing!

[DS1]

3. Time ceases to exist, and we have to get back to the Island

oh, and bullshit on your kid asking that question, it's right out of the typical shitface libertarian quiver

[GreenPartyVoter]

58. LOL I wonder how many people that reference is lost on?

[tekisui]

4. It's like hitting the reset button.

Everybody has nothing.

[Dennis Donovan]

5. The DJIA is an indicator of value...

...so, hypothetially, if it dropped to Zero, that would mean that the entire world economy would be bankrupt.

Then the wars begin...:(

[Veritas_et_Aequitas]

8. I think wars is being a big inaccurate.

Who would pay the soldiers or feed them? I see it as more wide-spread anarchy as society collapses. Like Mad Max, but less amusing and a thrice-as-crazy Mel Gibson.

[Dennis Donovan]

10. I was referring to resource wars...

...over oil, water, precious metals, etc.

[Veritas_et_Aequitas]

11. Ah yes. nt

[Soupy Liberaltarian]

6. An instant, single day drop to zero is not the same as a gradual drop to zero? Right?

Or am I mistaken in assuming a relative value of investments.

[Veritas_et_Aequitas]

9. Well, the former is infinitely more catastrophic than the latter.

But both would indicate bankruptcy for those companies and the overall collapse of the economy.

[The2ndWheel]

7. That would mean physical reality caught up

[KharmaTrain]

12. We're Back To Barter...Hunting And Gathering

In addition to the many good explanations in the other threads, 0 on the Dow means there's no money moving...it's like the economy no longer exists...money in your pocket has 0 value.

[phantom power]

13. It would mean all the DOW component businesses had zero value.

[JackRiddler]

25. Ding! You, at least, have a clue...

Good work. Can't believe the answers in the vein of "OMG, it would be the second coming!" came before yours.

A hundred or so years ago, the DJIA didn't even exist. It's an index of 30 corporate stocks that Dow averages according to a formula, which is claimed to accurately measure the overall health of the industrial economy in capitalist terms. (Capitalist terms? That means: dollar return on investment to the private owner of shares, and to hell with everything else if it doesn't serve that.)

Dow switches components of the DJIA as companies rise and fall. Most recently, long-running insurance and financial parasite AIG failed and was dropped in favor of Kraft Foods, which at least puts some cheese in its whipped air. I think the only company left from the original DJIA is General Electric. The presence of entities such as Walmart and McDonald's may indicate that the Dow is not necessarily a measure of things any rational person wants to see grow.

In other words, the original DJIA has, in a sense, dropped to something close to zero. Many of those original companies no longer exist. The DJIA still does because other companies were swapped in to the average. This is a judgement call.

Judging by the answers before yours, Dow has successfully sold the DJIA as the most important indicator of whether your heart is still beating and the world turning.

Practically speakng, the end of the DJIA would be a minor accompaniment as the total failure of the present economic order is acknowledged.

It's a bit like asking: What would happen if the Berlin wall was opened? Or: What if people woke up one morning and realized collectively that their old completely wrong system of values had ceased to operate?



ON EDIT: Others below also show they at least know what the DJIA is.

.

[OPERATIONMINDCRIME]

54. Wow.

Can't recall every being so impressed with a response of yours.

100% spot on. Bravo.

[JVS]

14. It would mean that the value of stock on every company listed on the exchange was zero.

[JackRiddler]

26. Not all companies in the exchange - the 30 companies in the DJIA.

There is a difference. The DJIA includes 30 mega-corps of the thousands listed on the NYSE that Dow has judged to be indicative of the corporate-industrial economy as a whole. That's a lot of assumptions in there.

[JackRiddler]

27. Not all companies in the exchange - the 30 companies in the DJIA.

There is a difference. The DJIA includes 30 mega-corps of the thousands listed on the NYSE that Dow has judged to be indicative of the corporate-industrial economy as a whole. That's a lot of assumptions in there.

[JVS]

33. Ah. Interesting.

[MajorChode]

53. But the assumptions are reasonable

At least as much as you could ponder a Dow ever reaching 0.

As those 30 become less and less profitable, they would be replaced by more profitable companies.

So in the hypothetical situation that the Dow hits 0, all stocks on the exchange would be nada also.

[jpljr77]

15. Lots of things would happen, most very bad, but some strangely good.

Bad:

Investors, including those that have money in 401k's, IRAs, mutual funds, etc., would lose their investments, obviously. This means that people that were counting on cashing out to retire or those that lived off of dividends would have to find other sources of income. VERY BAD.

Companies would lose their access to working capital, meaning mass layoffs and closures.

Governments -- U.S. federal, state and local, and most foreign governments -- would become insolvent, as their investments were wiped out. More mass layoffs, suspension of services, potential government shutdown, etc.

The obvious: there would be no more Wall Street, High Street, etc., meaning even more mass layoffs.

"Good":

Companies would no longer be compelled to pay dividends, which would free up some cash.

New industries would have to emerge, or more likely, old industries would have to be revitalized...like agriculture.

[zeemike]

16. It would change a lot of things.

All retired people would have to live on Social Security and those well invested in the market living in Mc Mansions might have to take on borders in order to heat their homes.
It would mean that farmers would become the new envied class and would be considered wealthy.
it would mean the Wall street and those that worked there would be on the street corners selling apples and pencils.
It would mean the corporations would suddenly become interested in making things that farmers wanted and needed.
It would make the military want to protect our farm land from invasion.
It would make us all rethink our system.

[eowyn_of_rohan]

17. It was at 50 in March 1933 the day my Dad was born

and a year later it was 100 and it went up, slowly, from there. For what it is worth...

[JBoris]

18. I think the NYSE has fail-safes to stop trading long before that could happen.

IOW the market would be closed after a predetermined percentage of the overall value had been lost. ... again I think thats right, but I'm not sure.

[Towlie]

19. Uh... It would mean all the computers would crash from a division by zero error?

[KittyWampus]

55. what an interesting answer, Towlie. Congratulations for really thinking outside the box

[TechBear_Seattle]

20. You first need to understand what the Dow actually is

The Dow Jones Industrial Average is a weighted average of 30 stocks. Yes, only 30. The companies represent the largest, most widely held stocks in the country; the "industrial" in the index's name is historical. The index is weighted to account for stock splits and other such adjustments. The composition of the index is altered from time to time, mostly to help keep the index artificially inflated. It has been recomposed 48 times since its creation on May 26, 1896; it has been recomposed six times alone in the last ten years (see here.) There is absolutely no chance that it will ever drop to zero: the managers of the index will simply recompose the index and replace tanking stocks with ones that are doing relativley well.

It is popularly considered an indicator of the overall US economy, but the reality is that it is a very tiny slice of a very limited aspect of a small part of our economic health.

[Brazenly Liberal]

22. excellent summation

Also an excellent illustration of how a huge component of the economy is perception. :thumbsup:

[JackRiddler]

29. Bravo.

Someone else who gets it.

The DJIA is what the executives at Dow say it is. Nothing more. People treat it like it's important, or like a rise in it is a good thing for them, without knowing why, or even what it is.

[livetohike]

34. Good summary

:thumbsup:

[billyoc]

21. It would mean 30 companies lost all their value.

Less significant an event than it sounds. Much as I'd love to see it, bargain hunters would always cause these 30 stocks to rally if they drop enough.

[treestar]

23. This wouldn't happen

The Dow is very high to begin with. The drop in 1929 was from a much lower point. In 1987 the drop was bigger, but from so high, the bottom was way higher than it was in 1929. All that wealth has been created and the basis of it can't be destroyed by this time.

[SidDithers]

24. Fire and brimstone coming down from the skies! Rivers and seas boiling!...

Forty years of darkness! Earthquakes, volcanoes...
The dead rising from the grave!
Human sacrifice, dogs and cats living together... mass hysteria!

Sid

[mainer]

40. who ya gonna call?

too bad this isn't a movie.

[Nicholas D Wolfwood]

28. Simply put, it cannot happen.

That would have to mean that not a single person in the world would have any money to invest. The only way that would happen is if currency became meaningless around the world entirely, in which case, we'd have a lot bigger problems than money. It would mean anarchy, the apocalypse, or both.

[JackRiddler]

31. Wow. 30 companies on DJIA = all money in the world ?

Did you know that the communists were less delusional? I bet you they never thought that the fall of the Berlin wall meant "anarchy, the apocalypse, or both," but you're telling us that the bankruptcy of Coca-Cola would signify "not a single person in the world would have any money to invest" and "currency became meaningless around the world entirely."

.

[Nicholas D Wolfwood]

35. I am not the delusion one, my friend.

Coca-Cola is one of the most recognizable brand names in the world. For not one single person to ever believe that Coca-Cola was a product not worth investing in for $1/share - that is absolutely ludicrous.

Just owning the rights to the Coca Cola name would be worth money to someone. It's just not going to happen.

[TechBear_Seattle]

38. American Sugar, US Steel, Sears & Roebuck, Woolworth, Westinghouse....

These were all among the most recognizable brand names in the world at one point. All were once part of the Dow. None of them are part of the Dow now. That Coca-Cola is currently part of the Dow is no guarantee that it will continue to be tomorrow.

You may wish to see my post above about what the Dow actually is.

[Nicholas D Wolfwood]

39. Do you not see the difference involved?

Coca-Cola is the only one of those that's an actual consumer-level product. The others either sold products that did not coincide with the brand name itself. But that's really way beyond the point I'm making.

And yes, I know what the Dow actually is - and your post and mine work together if you realized it. For the Dow to reach zero, it would have to mean that not a single person in the world would have money to invest in any publicly traded company, as there is ALWAYS something worth investing in at some given price point. Given that the Dow could swap out any of its top 30, that means the Dow would always have a value as long as there is such a thing a money.

[Xenotime]

32. it can and will happen.

I see the whole system going down the toilet. Provided we aren't all shitting out in the woods by then. Thanks to fucking * and his cronies for makeing this situation. FUCK THEM!

[Nicholas D Wolfwood]

36. Hyperbolic much?

[lumberjack_jeff]

41. That's an oversimplification.

The Dow is more than just the value of the companies in question, it also assumes the presence of the fiscal/monetary/economic system that allows the companies to be publicly traded in an open market.

I can think of a number of unpleasant scenarios in which the Dow drops to (for all practical purposes) zero, the most obvious of which is monetary collapse followed by closing the stock markets.

The constituent companies in the dow still have some sort of value, but it's impossible to measure it in the absence of a generally-accepted currency.

[Nicholas D Wolfwood]

43. I said specifically exactly what you said.

Quote "unless currency became meaningless around the world entirely"

In which case we absolutely would have much, much bigger problems than just financial ones.

[ThomWV]

30. At that very moment cows would fly

There is residual value in any company, even when it ceases to function. The buildings still have value, the office furniture too. It can all be sold at auction for pennys, but its still value and it is still divided among shareholders (once debtors have been paid).

[Nicholas D Wolfwood]

37. Nevermind the invaluable intellectual property

Such as the rights to the Coca-Cola brand name - one of the most recognizable icons in the world. That alone would be worth investing in. For the Dow to reach zero, there would almost literally have to be no money available in the entire world to invest, which I imagine is literally impossible without anarchy.

[lumberjack_jeff]

42. The weakness isn't the value of the buildings and furniture

The weakness is in the currency in which they are valued.

[serrano2008]

45. When the Dow gets to Zero that's a great time to invest.

Hell, even right now is a great time to invest.

I know I'll probably get thousands of responses from professional stock traders saying the market and the economy are going down the tubes, but that's simply not the case.

The market will recover and those of us buying in now will be making the megabucks from the recovery.

[Xithras]

52. Yeah, you could buy Intel for $5

Which, of course, is why the Dow can't actually drop to zero. Each share represents a tiny ownership stake in the company, and if the company has any value AT ALL, those shares can't drop to zero.

If they did, you could buy them all for $5 and own the company outright. At that point, EVERYONE would kick in their $5, a bidding war would launch, and the value would shoot up again. In the real world, that bidding war would launch long before the values actually hit zero.

Which is why the Dow can never completely lose all value. As long as those companies have any value whatsoever, their shares will also have value.

It can get damned low though.

[specialed]

46. Thats when you offer a penny a share!

If the trading value were -0- meaning no buyers or sellers for the stock it would have no impact on real GDP.

The stock market does not create GDP it is a wealth transference vehicle, nothing more

[HiFructosePronSyrup]

47. It would mean nobody would want to invest in the 30 companies comprising the Dow.

The Dow effectively hit bottom during the Depression. It hit, I think, 16 pts., which is close enough to zero that nobody really cared. They pretty much closed shop and went home.

It means the companies are bankrupt, or nobody wants to spend any money investing in those companies.

It does not mean the end of the world, or instant WWIII, or any of the other doomsday scenarios the know-nothings are claiming.

[TechBear_Seattle]

48. At which point, the Dow managers would reconfigure the index

And replace the stocks that everyone is selling with stocks that everyone is buying, thereby reinflating the index. This has happened periodically over the index's 110 year history, with six such restructurings in just the last decade. If there are NO stocks with with to restructure the Dow, things are far worse than just worrying about a single index which really has no meaning anyway.

[robertpaulsen]

49. Here's the sad, short wordless answer for what it would mean.

:nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke::nuke:

[Strelnikov_]

50. No size restrictions . . .

and screw the limit!

[Rosco T.]

51. "Mission Accomplished" for the RUSHlicans n/m

[hunter]

56. Imagine an abandoned house in Detroit...

http://www.themotorlesscity.com/photos/abandoned-houses

That's what happens when the value of a house approaches zero.

Same with corporations. First the looters strip it, then the vandals smash it, and lastly the weather takes what's left. Very soon there's nothing left worth saving.

[JackRiddler]

57. It would mean the Dow Jones corporation went out of business...

because people realized that the indicator it was selling to them no longer told them anything they cared about.