Friday, June 19, 2009

Eerie similarites - predictions or coincidences?

The Financial Times Online
The recession tracks the Great Depression
By Martin Wolf
Published: June 16 2009 19:41

...Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one...

...In their paper, Profs Eichengreen and O’Rourke date the beginning of the current global recession to April 2008 and that of the Great Depression to June 1929. So what are their conclusions on where we are a little over a year into the recession? The bad news is that this recession fully matches the early part of the Great Depression. The good news is that the worst can still be averted.

First, global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely...

...Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression. Indeed, the decline in world trade in the first year is equal to that in the first two years of the Great Depression. This is not because of protection, but because of collapsing demand for manufactures.

Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression.

The two authors sum up starkly: “Globally we are tracking or doing even worse than the Great Depression ... This is a Depression-sized event.”

...Finally, fiscal policy has been far more aggressive this time. In the early 1930s the weighted average deficit for 24 significant countries remained smaller than 4 per cent of gross domestic product. Today, fiscal deficits will be far higher. In the US, the general government deficit is expected to be almost 14 per cent of GDP.

...Robust private sector demand will return only once the balance sheets of over-indebted households, overborrowed businesses and undercapitalised financial sectors are repaired or when countries with high savings rates consume or invest more. None of this is likely to be quick. Indeed, it is far more likely to take years, given the extraordinary debt accumulations of the past decade...

The ugly truth is that this crisis would ALREADY be over if the government had given that "stimulus" money to every household in the US instead of to a handful of Robber Barons. Instead it is going to drag on for years because households have NO WAY to get out of debt and resume spending. Since they can't spend, more and more businesses will go out of business. Only a Jubilee can stop the cycle now, and we didn't get one. Instead, we will get handed an even bigger bill because not only did we not get debt relief, now we have to pay for this bailout boondoggle as well.

Graph courtesy of Charles Hugh Smith.

Lovely, isn't it? Doesn't that nice hyperbolic curve make you confident things are going to get better soon? Of course not! Great going, Congress. Nice job. There's no question now who you really represent - and it isn't the citizens of the United States of America.

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