Will America's Stock Market Collapse Lead to Depression?

The billions of people in the world who don't invest in the US stock market have one big concern about America's plunging stock prices. Will the puncturing of the stock market boom incite a crumbling of the US economy, one that will spread to the rest of the world? That question is vital, because many financial bubbles have, indeed, been followed by a collapse of output and employment.

We can only guess at the answer, but my guess is that the US will escape with only a modest slowdown. My optimism may seem misplaced in a period when the stock market falls nearly every day, and when other countries have historically seen stock market collapses incite economic collapses as well.

It also seems misplaced given America's weak economic leadership. President Bush recklessly put a tax cut for the rich above all other economic concerns. He is a protectionist, not a free trader. Now both President Bush and Vice President Cheney are under scrutiny for possible corporate misdeeds while they were in business.

So why am I moderately optimistic? Examining the links between the stock market and the rest of the economy may explain this.