Best of the Week
Most Popular
1.The Trump Reset, US Empire's Coming Economic, Cyber and Military War With China (2/2) - Nadeem_Walayat
2.Now Is the Time to Buy Gold - 5th Jan 17 - John Grandits
3.CIA Planning Rogue President Donald Trump Assassination? Elites "Manchurian Candidate" Plan B - Nadeem_Walayat
4.The Trump Reset - Regime Change, Russia the Over Hyped Fake News SuperPower (Part1) - Nadeem_Walayat
5.Most Popular Financial Markets Analysis of 2016 - Stock Market Crash Postponed Again - Nadeem_Walayat
6.No UK House Prices Brexit Crash 2016 Despite London Weakness, Forecast 2017 - Nadeem_Walayat
7.President Trump Understands the NSA, CIA... LIE, America's Intelligence Agencies Crime Syndicate! -Nadeem_Walayat
8.President Donald Trump's 2017 New Year Message, BBC Fake News, Was 2016 a Dream? - Nadeem_Walayat
9.Major Stocks Bear Market Still Looms - Zeal_LLC
10.Biased 2017 Forecasts - Debt, Housing and Stock Market (1/2) - James_Quinn
Last 7 days
Will the CIA Assassinate Rogue President Donald Trump Like JFK? - 19th Jan 17
Bonds, Dollar, Stocks, Gold, Silver Major Markets at Turning Points - 19th Jan 17
Populism; the Danger? What About Debt? - 19th Jan 17
Gold Price 50-DMA Breakout - 19th Jan 17
Turkey, 'Axis of Gold' and End of US Dollar Hegemony - 19th Jan 17
The Most Important Market Chart on the Planet - 19th Jan 17
Trump Deficits Will Be Huge - 19th Jan 17
Stock Market Trading Patience Pays Off with CHK Using Momentum Reversals - 19th Jan 17
Gold - How to "Buy Low and Sell High" Like a Pro - 19th Jan 17
State of the Global Stock, Financial and Commodity Markets Report 2017 - 19th Jan 17
The Hunt for Russia's Next Enemy - 18th Jan 17
Returning Gold Bulls - 18th Jan 17
Biotech Breakthrough Could Create A $11.4 Trillion Opportunity - 18th Jan 17
Bitcoin and Gold - Outlook, Volatility and Safe Haven Diversification - 17th Jan 17
Stock Market Uptrend on Borrowed Time - 17th Jan 17
The One Stock to Retire On - 17th Jan 17
Trump anti-Communist Counter Revolution - 17th Jan 17
US Stock Market Update as the Trump Inauguration Approaches - 17th Jan 17
The American Crisis - Common Sense 2017 - 17th Jan 17
Obama Leaves, Hope Arrives, Will Stupid Stay? - 17th Jan 17
Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions” - Keith Neumeyer - 17th Jan 17
Gold Price Forecast 2017 Update - Video - 17th Jan 17
The Story of the U.S. Regime Change Plan in the Philippines - 16th Jan 17
Gold Price 2017 Trending Towards $1375 as Forecast - 16th Jan 17
'Deep State' CIA Director States We are Not NAZI's, Warns Trump Does Not Understand Russian Threat - 15th Jan 17
UK House Prices Forecast 2017 - Crash or Bull Market? - Video - 15th Jan 17
SPX Stocks Bull Market Update - 14th Jan 17
President Trump vs the Deep State that Hides in Plain Sight - 14th Jan 17
The Impact of Sir Alex Ferguson's Retirement on Man United's Share Price - 14th Jan 17
What Can Stock Market Tell You About Politics? - 13th Jan 17
Big Gold Buying Coming 2017 - 13th Jan 17
A Bullish Case for Gold 2017 - 13th Jan 17
Will Stocks Bull Market Continue to Charge or is it Time to Sell the News - 13th Jan 17
Gold and Silver Off To Shining Start to 2017 - 13th Jan 17
Gold’s Fundamental Outlook for 2017 - 13th Jan 17
Is trading stocks and shares just as luck-based as roulette? - 13th Jan 17
Trump CIA Like Nazi Germany - Fake MI6 Intelligence leaked to Fake News Mainstream Media - 13th Jan 17
USD in Decline. SPX and TNX May Follow - 12th Jan 17
CIA War On Trump - Leaks Fake MI6 Intelligence to Fake News Broadcast Media - 12th Jan 17

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

The "Great Depression" and the "Great Recession" FAQ

Economics / Economic Depression Aug 23, 2011 - 04:43 AM GMT

By: Asha_Bangalore

Economics

Diamond Rated - Best Financial Markets Analysis ArticleThere have been frequent questions from clients and partners about the “Great Depression” and the recent recession, which is often called the “Great Recession.” Here are five important aspects that should help to put the two periods in historical perspective.


Q1 What is the duration of these two downturns in economic activity?

A1. The Business Cycle Dating Committee of the National Bureau of Economic Research identifies the periods of recessions and expansions in the U.S. economy. The Great Depression had two distinct periods of a decline in economic activity, one more severe than the other in terms of both the duration and depth of the recession. The first leg of the Great Depression was from August 1929 to March 1933, which is a 43-month experience; the second leg spanned a 13-month period from May 1937 to June 1938. The Great Recession has been identified as stretching from December 2007 to June 2009, a total of 18 months. As a frame of reference, the median duration of recessions in the post-war period has been 10 months.

Q2. What is the magnitude of the decline in real GDP during these two periods?

Real GDP plunged 26.6% during 1929-33 but posted a smaller decline of 3.5% during the 1937-38 recession (see Chart 1). [Charts 1 and 2 are indexed charts where the level of real GDP at the peak of the business cycle is set equal to 100. A reading of 96 would mean that real GDP has dropped 4% from the peak and 102 would stand for a 2.0% increase in real GDP from the peak.] By contrast, more recently, real GDP has dropped 5.1% from peak to trough during December 2007-June 2009 (see Chart 2). These numbers indicate that the extent of the drop in real GDP this time around has been significantly smaller than during the Great Depression.

Q3. What was the unemployment rate during the Great Depression? Has the labor market suffered a similar deterioration this time around?

The unemployment rate during the Great Depression hit a high mark of 24.9% in 1933 (Chart 3) when roughly 12.8 million people were out of jobs. This time around, the peak of the jobless rate was 10.1% in October 2009 and holding at 9.1% in July 2011. If folks who are working part-time but want full-time jobs and those marginally attached to the labor force are considered unemployed, the jobless rate peaked at 17.1% in September 2009 (see Chart 4). Based on these numbers, the labor market setback is also smaller now compared to the 1930s.

Source: Labor Force, Employment, and Unemployment 1929-39, Estimating Methods, Monthly Labor Review, July 1948

Q4. What was the extent of deflation in the Great Depression? Did the U.S. economy experience a deflation in the Great Recession?

The Consumer Price Index (CPI) fell during 1930-33 and again in 1938-39 (see Chart 5). A deflationary experience of this nature has not been occurred in the US during the entire post-war period, with the exception of 2009 (see Chart 6). The Fed’s aggressive and innovative monetary policy measures put in place during 2007-2011 were to a large extent to prevent another deflationary episode in the US economy. The Fed has succeeded in containing deflation to a single year this time around, mainly because it drew valuable lessons from its 1930s experience.

Q5. We have written extensively about the importance of tracking Monetary Financial Institution (MFI) credit in the economy (sum of Fed credit and bank credit) to establish if self-sustained economic growth will be in place. How did Fed and bank credit perform during the Great Depression?

Loans and investments of all banks (bank credit) fell each year from 1930-1933 and once again in 1937, while Fed credit fell in 1929 and 1930 and rose slightly during 1931-33 (see Chart 7). The significant drop in bank credit is what stands out during this period (see Chart 7). Consequently, the sum of bank and Fed credit, MFI, fell during both phases of a decline in economic activity of the Great Depression (see Chart 8). Our view about MFI credit is that, historically, it explains a large part of the growth in GDP. The monthly U.S. commentaries of March 2011 (To QE or Not to QE? That is the Question) and April 2011(The Fed Terminates QE1, We Lower Our GDP Forecast) explain this relationship in detail. The main takeaway, as mentioned earlier, is that a drop in MFI is also associated with a decline in GDP during the Great Depression (see Chart 8).

Source: Data plotted in Charts 7 and 8 are from Banking and Monetary Statistics 1914-1941.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2011 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Steveo
04 Sep 11, 15:09
Unemployment

Employment comparison is wrong. Calculated different today to hide the numbers. It is as high today as the peak of the great depression. To reduce it now reduce immigration and impose everify for ALL jobs. Enforce the law againsllt business and 8-10million jobs will be available within 6 months.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife