Analyst: Great Depression Comparisons Are Bunk

The Great Depression was caused by the rapid destruction of unsustainable levels of debt created during the previous decade. The debt supported leveraged malinvestment in paper assets, especially in the stock market.

The situation is similar today in that huge amounts of debt combined with dangerous amounts of leverage went into speculation on real estate or derivatives based on real estate. The debt is now starting to default, except for the debt held in politically connected banks such as Citibank, JP Morgan, and Goldman Sachs which is backstopped by the U.S. taxpayers future income (borrowing, money-printing).

Comparing the unemployment rate then and now is comparing apples to oranges in that women were not a significant part of the labor force back then, so the denominator in the 1930's figure was smaller back then, thus the unemployment figure of 25% is lower in today's terms. Also, the unemployment numbers released today do not count the underemployed, those who give up looking for a job, or those who no longer collect unemployment. The BLS U-6 figure of 15.4% is closer to the true unemployment rate. In other words, the unemployment numbers are closer than at first glance.

The main difference between now and back then is that during the 1930's the U.S. was the world's biggest creditor, now the U.S. is the world's largest debtor. To finance the stimulus, the U.S. can only beg other nations for money or print money. Printing money ("quantitative easing") can spur hyperinflation in the long run, so the U.S. gameplan is to beg for money from foreign nations. This means the Treasury Secretary Geithner who is fluent in Chinese has to beg them for money. China will want free trade in return, so that they can have full employment at home, destroy the manufacturing base of the U.S., and weaken the U.S./U.K. influence on the global financial scene.

Rubik of NY 4:56PM February 14, 2009