Tuesday, April 7, 2009

Recession vs. Great Depression: Not Yet...

Bringing you up-to-date on the recession, watch this very clear explanation by Stiglitz.

Now that you know the history, how bad is it?

By this point, comparing the Great Depression to the current recession is hardly a new idea. The bottom line is that, so far, there is no comparison. We are nowhere near this:

By 1933, the height of the depression, unemployment had risen from 3% to 25% of the nation’s workforce. Wages for those who still had jobs fell 42%. GDP was cut in half, from $103 to $55 billion. This was partly because of deflation, where prices fell 10% per year. By 1933, world trade plummeted 65% as measured in dollars and 25% in total number of units.

In fact, by my personal metric (the price of vacation property along the Maine coast, there is no recession at all: prices there remain near the peak of the enormous bubble that region has experienced in the last five years). And yet, a few points need to be kept in mind:

  • To be valid comparisons need to be global, not just for the U.S.
  • Although trends may be worse in some cases, so far we are nowhere near reaching the severity of the Great Depression
  • This recession isn't over yet
  • The Great Depression provoked war; this time, we are already at war.

Now, for some of the data so far:

U.S. stock market data for 1929-30 vs 2008-09 is a perfect match!
The decline in global industrial production for the first nine months is now also a perfect match!
Global stock market declines are worse this time.
The decline in global trade is worse this time.
The bank failure rate is far less this time, but estimates of total losses to be suffered are rising rapidly.

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