Analyst: Great Depression Comparisons Are Bunk

Reader Comments
Back to blog

No one who is critical of this stimulus package is willing to look at the timeline. Roosevelt didn't come to office until years after the fall. This time the spending is going to get a better start and much better chance to stem this now!

Charles of FL 10:20AM February 15, 2009

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

the economy of Los Angeles has started to collapse due to lack of liquidity in the entertainment industry...I am sure that all of the unemployed people here and all of the shops, they no longer support which are now closing, will be happy to hear this reassuring source tell them with such trustworthy authority, that it is not really happening.

tara Dass of CA 4:24AM February 13, 2009

lalalala

fsfsdf of CO 11:52AM February 12, 2009

Is because of what FDR did that caused the economy to recover (more like 10 years than the 4 you referred to)...? GDP may have bounced back somewhat b/c of govt production, but unemployment never did.
I really don't see how "pumping large amounts of money"...truly fake money; as everyone will learn over time; is going to help our problem. It is very clear the political leanings and stupidity of this author.

Matt of OH 9:49AM February 12, 2009

Private debt and public debt simply aren't the same. For a start, the US government can by fiat change the value of the currency if policy necessitates it.
People just have no idea what they're talking about here. For instance, equating inflation with a depression, when the depression was a primarily deflationary environment.

Dezakin of WA 6:11AM February 12, 2009

It truly is a good thing Nixon got us all off the gold standard, at least now we will have something to burn for warmth when hyperinflation kicks in.

D.K.R. of TX 2:15AM February 12, 2009

The GD did not last 4 years it lasted 12 to 16 years, some economists believe it ended at the start of WWII, most believe it ended at the end of WWII. The trade war had minimal effect during GD we were still an isolationist nation with a small amount of trade compared to today (as a percent of GDP), today we have something much worse an account deficit that is out of control. the monetary and fiscal policy of the new administration will have a negative impact on the economy, with the government borrowing large amounts of capital and spending it on inefficient government programs

R. Harrison of NV 11:28PM February 11, 2009

I thought the great depression ended when the U.S. entered World War II and every able bodied man and woman was put to work in the war effort. The men who were able were in the armed services and those who were not able to serve were working. There was practically no male who was not employed and many females who were also employed in making armaments. Unemployment dropped to zero. At the same time there were shortages of many basics such as housing and food. People received ration books to buy food. When the war ended there was a pent up demand for almost everything, including housing, cars, appliances and clothing. Basic industries started to boom.
Perhaps, the Great Depression ended two years before World War II as the analysts at Morgan Stanley state, but it must have been a marginal measurement.

Ron Cope of IL 11:03PM February 11, 2009