The end of optimism

Shock waves from the financial sector are moving into the economy. As a result, doing business and managing money will be a challenge at every level. A look at how to lessen the difficulty of these turbulent times.

The hits just keep on coming. Between Oct. 6 and Oct. 10, the Dow Jones industrial average plunged more than 1,800 points, as forced sell-offs led to one of the biggest drops in the history of the index. Major markets are now down between 30% and 40% from last year. For anyone managing money or a business, or hoping to retire soon, it is a distressing, anxious time. The mood, on Wall, Bay and Main streets, is bleak.

Small wonder. After all, even the experts have been thrown off balance. Ben Bernanke, the head of the U.S. Federal Reserve, seems to be innovating policy on the fly, along with policy-makers around the western world. Multibillion-dollar economic decisions that would otherwise have involved years of debate are being made in minutes, between just a few people, and behind closed doors. And so actions that are designed to instil confidence end up working in reverse.

These are not normal times. The global financial system is in shock, and central bankers are trying to keep the body warm until the vital organs — credit markets — start working again. But the shock waves from the financial sector are just now beginning to move into the real economy. That suggests we’re going to see disappointing earnings, budget chaos, shutdowns and layoffs in the months ahead. We are also going to see the cost of capital rise as the economy enters a period of lowered expectations. It’s going to be harder to do business at every level.

To help you navigate the turbulence, we’ve prepared an emergency response kit: Where do you put your money? How do you manage your company through this? What are small businesses doing to shelter from the storm? And perhaps most satisfyingly: Who’s to blame for this mess?