Analyst: Great Depression Comparisons Are Bunk

Morgan Stanley makes the case.


Lots of headlines these days are comparing the current economic crisis to the Great Depression--even Obama said in a speech this week that this "is an economic crisis as deep and as dire as any since the Great Depression." Morgan Stanley's global economics team begs to differ:

...the comparisons are misplaced. The GD lasted almost four years, with US real GDP and the price level falling by almost 30% and the unemployment rate rising to 25%.  Importantly, the GD was due to a series of policy mistakes: monetary and fiscal policy were passive, and governments started a trade war. Now, monetary and fiscal policy are hyperactive, and a trade war will probably be avoided. The Fed allowed US money supply to contract by close to 40% during the GD as it didn’t rein in bank failures and was restrained by the gold standard and ideology. The GD ended when President Roosevelt abandoned the gold standard and stabilised the banking system. Now, central banks are pumping large amounts of money into the banking system and the economy. This, together with the coming fiscal stimulus, is the main argument against a repeat of the Great Depression.