The Great Depression parallels... busted

This is not just a deep recession or depression, or Great Depression II

by bart
June 20, 2009



The following monthly charts compare a few important data series during the periods starting September 1929 and October 2007, and simply measure the changes in growth or contraction. The actual facts in the monetary and fiscal areas are much different than most think or believe.




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There are truly huge differences between then and now in the following statistics: As rough definitions, M1 is composed of cash and checking accounts, M2 adds in savings deposits and CDs under $100,000 and money markets funds (excluding IRA or Keogh money market fund balances), and M3 adds in CDs over $100,000 and institutional money market mutual funds and a few other items. Bank credit is "Bank Credit of All Commercial Banks" (TOTBKCR).





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These are simply various rate comparisons at the beginning of the most recent month, with a comparison to the equivalent month in the 1930s. They are not differences since the beginning of either the Great Depression or the stock market peak in October 2007.









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This is not just a deep recession or depression







The same charts as above, except starting in March 2000 instead of October 2007



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It's not possible to show a truly full picture and comparison between now and the 1930s, and there certainly are items which are tracking the Great Depression quite well (like bank failures when total actual bank locations are counted), but its important to note the many items which are not tracking the Great Depression so that a fuller and more accurate perspective may be achieved.


Data sources: Federal Reserve, Federal Reserve archives, Bureau of Labor Statistics
Changes between then and now were calculated by taking the percentage growth from September 1929 mostly to April 1931 figures, which is the same amount of months between October 2007 and May 2009. Adjustments were made when data was not available for May 2009.

The charts above are maintained on our Great Depression page.
Now and The Future





An alternate view on charts from Barry Eichengreen and Kevin O’Rourke

In their article A Tale of Two Depressions from April 2009 and updated on June 4th, some charts were included which could be quite misleading, and have been for many in our experience. As Barry Eichengreen and Kevin O’Rourke note, "World industrial production, trade, and stock markets are diving faster now than during 1929-30."... "The update shows that trade and stock markets have shown some improvement without reversing the overall conclusion -- today's crisis is at least as bad as the Great Depression."

We note that industrial production fell about 48% from peak to trough in the recession in the mid 1970s. It fell about 53% during the U.S. Great Depression. In other words, one could also say that the mid 1970s recession was very close to as bad as the Great Depression when judging by industrial production. The S&P 500 index fell about 48% during the mid 1970s recession, just for comparison.

And we have seen many sites link to the article without noting the starting date or current date issues, as well as not noting that there are many other statistics which show very different pictures and perspective as noted above.

Our basic concern is that they used a starting date for most of the charts of June 1929, which is the world industrial production peak, while the Great Depression itself didn't start for many months after the production peak. The charts also start of the current period at April 2008, which is 5 months after the U.S. official recession started in December 2007 and seven months after the stock market peak in October 2007.

Here are the Great Depression starting dates by quarter, sorted earliest to latest. As can be seen, the average starting date was significantly later than June 1929. The current date of April 2008 is also significantly later (a total gap of at least 8 months when compared to using actual Great Depression and current U.S. stock market peak dates), which quite significantly affects the picture shown in the various charts.

CountryYear, quarter
Germany 1928,1
Brazil 1928,3
Poland 1929,1
Canada 1929,2
Argentina 1929,2
United States 1929,3
Italy 1929,3
Belgium 1929,3
Switzerland 1929,4
Czechoslovakia 1929,4
Netherlands 1929,4
India 1929,4
Great Britain 1930,1
Japan 1930,1
South Africa 1930,1
France 1930,2
Sweden 1930,2
Denmark 1930,4
Source



World stock markets, using U.S. Great Depression and current day stock market peak start dates


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Barry Eichengreen and Kevin O’Rourke chart

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World money supply, using U.S. Great Depression and current day stock market peak start dates


A similar situation with start and end dates is also apparent when looking at world money supply, then and now. Our chart below also shows detail from 2009, which again significantly affects the picture and perspective.


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Barry Eichengreen and Kevin O’Rourke chart "Money Supplies, 19 Countries, Now vs Then"

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