The year was 1957. Russia launched Sputnik, Dwight D. Eisenhower was in the White House, Elvis swiveled his hips in "Jailhouse Rock" and the Dow and the Nikkei were at level pegging.

Fast forward to today. After following Sputnik into orbit, the Nikkei has crashed back to earth, closing below the Dow for the first time in more than 44 years. The indexes touched briefly last Sept. 12, when the Nikkei plummeted after the previous day's terror attacks on the U.S.

Wall Street was closed for business, and the convergence of two of the world's bellwether stock indexes was lost in the shock of the deadly attacks. By the next day, the Nikkei was back above the Dow. Today's reunion, far from being a happy one, is inspiring dread in financial capitals. The Nikkei's slide is the latest side effect of Japan's 11-year slump. Another was underlined yesterday when S&P raised the specter of a third cut to the country's credit rating. The Dow added 157 points to close at 9920 yesterday. The Nikkei finished the week at 9791, after shedding 206 points today, taking its losses since Monday's opening bell to 3.9 percent.

Economic history buffs will be transfixed by the novelty of it all. Look at is this way: When the Nikkei peaked at 38,957 on Dec. 12, 1989, the Dow Jones reached a intraday high of 2753. Since then, the Nikkei has plunged to less than a quarter of its value. The Dow has quadrupled.

Or how about this? The last time the Nikkei closed below the Dow, Japan's octogenarian Finance Minister Masajuro Shiokawa was a sprightly 36-year-old, a decade away from his first parliamentary seat, and U.S. Treasury Secretary Paul O'Neill was a 22-year-old engineer at Morrison Knudsen Corp.

How low will it go?

Just before the asset bubble burst in the early 1990s, analysts thought the Nikkei would top its 1989 peak. Today, the question is how low can it go? The same is true of the economy, which is more vulnerable to falling asset values than most.

The damage done by the diving Nikkei is more than just psychological. As the Nikkei falls, the value of shares held by the nation's banks dwindles, eating into their capital and reducing their ability to write off bad loans or, in the case of the weakest, cover withdrawn deposits. Banks are becoming shakier by the day.

That's not to say the U.S. stock market is booming. It was just 18 months ago that Wall Street's brain trust predicted the Dow was heading to 20,000. Or as James K. Glassman and Kevin A. Hassett's book proclaimed: Dow 36,000.

Today, it's struggling to break back above 10,000. Together, the Nikkei's slide below 10,000 and the Dow's failure to rise above it speaks of the weakness of the global economy. Japan is on the verge of a deflationary spiral. Asia's biggest economy, and the region's traditional growth engine, is hobbled. And while the U.S. may be showing signs of recovery, it's hardly in a position to help the global economy.

Rise and fall put into focus

Discerning what the convergence of the Dow and Nikkei means is difficult. The Dow and the Nikkei are very different measures. The Dow is a weighted index of companies based on points; the Nikkei is priced in yen. This much is clear: The Nikkei's drop below the Dow for the first time since the mid 1950s crystallizes Japan's economic rise and fall.

It also raises the risks for Japan's financial system. Not only is it slamming consumer and business confidence, it's also eroding the solvency of banks. Japanese banks have long considered stocks legitimate collateral on loans, and they're sitting on mountains of paper losses. The Nikkei lost 24 percent in 2001, taking quite a bite out of financial balance sheets. It's down another 7 percent already this year.

There's a growing consensus in Japan that taxpayer money will be used to bail out banks once again. The last such move was in 1999, when Tokyo injected 7.5 trillion yen ($57 billion) into banks to help them write off bad loans without eroding their capital. Today, the system is far worse off than it was in 1999 and Japan's bad loans are growing each week.

Unpopular move raises questions

It's unclear if investors will look favorably on another bank bailout. They might have if trouble in Prime Minister Junichiro Koizumi's government weren't weighing on markets. Koizumi's move to sack his popular foreign minister, Makiko Tanaka, is backfiring. Virtually overnight, Koizumi went from beloved leader to embattled one.

Koizumi thought firing the controversial Tanaka would refocus attention on his economic reforms. It did exactly the opposite. Now, more than ever, investors are doubting Koizumi's ability to push his reforms -- forcing banks to write off bad loans, reducing government debt and boosting competition -- past skeptical politicians. There's little disagreement that of the globe's two biggest economies, Japan is in the most trouble. High debt levels in the U.S. and the lingering effects of its own asset bubble crash in 2000 are concerns. Yet Japan's failure to fix its problems a decade ago, or even three years ago, are haunting the nation.

The Nikkei's move below the Dow is merely the latest manifestation of Japan's decline. And a worrisome one at that.