A potential conclusion from yesterday's global sharemarket slump is that investors had not worked out until now that the credit crisis is going to shred economic growth.
But that beggars belief: the link between the financial crisis and the real economy has been central to the sharemarket's response from the time debt markets began freezing up in August last year.
The early theory, that the meltdown was a virtual phenomenon confined to the markets, was suspect from the beginning, under pressure by the end of last year - and blown away by the full flowering of the crisis in January and February.
The fall-back theory, that it would depress growth but not result in recessions around the world, was on its last legs by early September and rendered inoperative by the savage intensification of the crisis that followed.
And the notion that the world's new economic engine, China, was "decoupled" because it had shifted enough of its growth away from exports to domestic demand began to fall apart in the middle of this year, as signs that China was slowing sharply began to emerge.
The September-October meltdown put paid to any vestigial hopes China was going to rescue Western world growth this year - as the accelerating slide in commodity prices since then showed - and the economic data out of the northern hemisphere has been all bad for at least a month and deteriorating.
Despite that, the release of more down data in the US on Wednesday night produced a 9 per cent fall, the Street's heaviest loss since the October 1987 crash and a cascading horror show around the world, including a 6.7 per cent Australian market slide led by the big miners.
The latest leg down has been attributed to a grab-bag of economic news and gloomy commentators who have the market's ear. The key piece of economic data was a 1.2 per cent slide in department store sales in the US in September, the biggest monthly decline in three years.
Wow: who could have guessed that shoppers would hold off discretionary purchases in September, when the world's markets were free-falling on their way to a 20 per cent loss? One that put the total collapse of the global system on the radar and forced world governments to take unprecedented action?
On Wednesday, Nouriel Roubini, the New York economist whose early, uber-bearish predictions have elevated him to the status of market seer, said America was entering its worst economic downturn for four decades, one that could stretch for two years.
Roubini described the dynamics of this meltdown early and accurately. In January for example, he was telling his clients that the markets were not dealing with a subprime mortgage problem but "a subprime financial system".
But he was also tipping that the US economy was already in recession in January and his once-in-a-generation recession comment is an extreme variant of what is now the status quo: there's general agreement that America is in recession and that large chunks of the world are following - which just goes to underline the oddity of this latest sharemarket descent.
It's just not a revelation that economic growth is tanking as a result of this crisis - pulling down everything that depends on it, including share and commodity prices.
The market plunge is now pressuring margin-funded investors and undermining specific situations, including Rio's defence against BHP Billiton's takeover bid. Rio took another blow yesterday with the revelation that the 9 per cent Rio spoiler stake compiled by Chinalco in February was locked up inside the ruins of its broker, Lehman Brothers.
As I noted when the markets were roaring up on Monday and Tuesday on news of the global bank support packages, the government rescue effort is a work in progress and in any event not a universal panacea.
There are still many unknowns, including the extent and location of the financial system's losses, how long it will take to get lending happening again in large enough volumes to make a difference, and the depth and duration of the economic downturn.
But with the global sharemarket down about 40 per cent from its peak across the board (Australia's ASX 200 is 41.2 per cent lower, Wall Street's S&P500 is down 42 per cent and the British market is 39 per cent lower, for example) a substantial economic downturn is already priced in, with a sizeable new safety margin added by yesterday's plunge.
The markets are volatile, to say the least, and futures trading was pointing to more falls on Wall Street after the close of local trading yesterday. But in the absence of "new news" about the economy or the progress of the financial system resuscitation effort, shares would not seem to have much reason to continue plunging.
