Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Debt-Driven Consumer Economy Breaking Down - 23rd Oct 17
Next Wall Street Stock Market Crash Looms? Lessons On Anniversary Of 1987 Crash - 23rd Oct 17
This Super Metal Is Set To Soar By 300% - 23rd Oct 17
More New Record Highs As S&P 500 Gets Closer To 2,600 Mark - 23rd Oct 17
Another Minor Stock Market Top? - 23rd Oct 17
Bitcoin Hits $6,000, $100 Billion Market Cap As Helicopter Ben and Jamie Demon Warn The End Is Near! - 22nd Oct 17
Time for Caution in Gold Miners - 22nd Oct 17
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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.


© 2005-2017 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