Maybe things won’t get as bad, but the problem with all these “safeguards” is that its the taxpayer that is on the hook. So instead of a complete washout to cleanse the system these “safeguards” will just draw out the process making it worse in the long run, i.e. instead of 10 years of “horrible” economic numbers we get 20 years of just “bad” economic numbers, like Japan.

I’d also argue that we benefited from being a young nation during the GD, whereas today we’re an aging nation and those demographics are going to hurt economic growth going forward. Also remember the USA was a net creditor nation during the GD and today we’re a net debtor nation.

I’m keeping an open mind, just maybe our Government will initiate some good policies going forward, but I have my doubts. I’m sure there will be more taxpayer bailouts and ill conceived programs, like “Cash for Clunkers”, where productive assets are destroyed which is really no different than FDR plowing under crops and killing livestock.

You might want to read Murray Rothbard’s “America’s Great Depression” and you’ll see there are many more similarities than differences when comparing today to the 1930′s.

Great blog keep it up!

the runs of the 1930s were an issue for public confidence, to be sure, but really counted little in the macro picture of money supply. the amount of money destroyed in bank runs was simply not large enough, particularly in comparison to the overall contraction of money supply, to be a significant issue. a third of banks failed, but most were one-branch operations. many banks which closed during the correspondent crisis of late 1930 reopened; it wasn’t until late 1931 that banks were being liquidated en masse, and that was two years following the asset crash and deep into the economic contraction.

by far the larger effect was the contraction of economic activity and the resulting effect on incomes, particularly, which become deposits. the idea that bank runs caused monetary aggregates to collapse is something of a canard, as i read it. which is why japan, which to my knowledge hasn’t seen a major failed bank throughout its long delevering, experienced an enduring deflation anyway. had it refused to fiscally stimulate and inject government-deficit-derived spending into the system to sustain incomes and deposits, it would likely have experienced a 1930s rerun even without allowing banks to fail.

what’s more, i’d argue we have indeed experienced a series of massive bank runs — just not among many depository institutions. what’s gone on in the shadow banks has had more or less the same effect on money supply.

but what we do have is a much larger government sector and a much greater willingness to lever the public balance sheet. that’s helping for now and i hope will prevent a GD2 scenario. but i think we have to admit that the setup is very similar, and we just don’t know how bad things might get.

I am not saying things aren’t bad, but they will never get as bad as the GD.

as then, we had large current account imbalances perpetuated over time across currencies (then to finance ww1 and its aftermath, now as a result of both closing the gold window and then managing/pegging currencies to the dollar for mercantilist purposes), which fostered a massive private sector leverage bubble. as then, the rise of debt increased economic inequality, concentrating wealth in the financial sector. as then, an inevitable fit of minsky instability burst the bubble. as then, balance sheet repair has since increasingly become the primary prerogative as a result.

the obvious difference is in the government response — though more as a matter of scale than type, i’d argue. hoover’s fed also went into the market to discount private bills and expand its balance sheet; hoover’s administration also administered fiscal stimulus. i think we can conclude that these efforts, then and now, have positive if transient effect — one has only to look at ireland to see what the absence of both looks like.

but the outcome is still far from knowable. the same process is at work from even more severe initial conditions. the results could be as catastrophic, indeed have been globally in the early innings. the big question is whether fiscal and monetary public policy can counteract the great private deleveraging. the success of public “counterleveraging” is imperative, but i don’t think anyone knows if it can work or if the results will be desirable.

TPC said, “[B]ut comparing the current downturn to the Great Depression is like comparing apples and oranges”

The numbers you posted were from the peak of the Great Depression and are comparing them to figures at the beginning of this one.

Click on the link below and read the article which has some great charts tracking the two economic contractions at the same points in time, you might re-think your apples to oranges comparison:

http://www.voxeu.org/index.php?q=node/3421

From the article “To summarise: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.”

The policy response has been much more effective in the early stage of this crisis than it was in the Great Depression, but the credit bubble is much bigger this time around. We have yet to see the real economic crisis, so far we have just seen a severe swift credit crisis that seems to have caught everyone by surprise. The swiftness of the crisis, both the collapse and tentitive recovery, is the most surprising thing.

I think it is far too early to make comparisons to the Great Depression. The Fed might end up eating its words sometime in the future, as it has through much of the current episode.