Great Depression 2.0
Dysfunctional capital markets, frantic central banks, stressed-out consumers, fear and uncertainty — all these are alarming echoes of the global economic cataclysm of the 1930s. Which raises the inevitable question: Could another Great Depression be lurking over the horizon?
On the surface, there are some disquieting parallels between economic conditions in the early 1930s and those of today. There was the popping of an enormous asset bubble — stocks then, housing now. And, as in the Great Depression, the financial system is in disarray. It was symbolized back then by the failure of thousands of banks, mostly small local outfits — 2,300 in 1931 alone.The parallel today is the crippling ofone-time giantssuch as Bear Stearns Cos., Countrywide Financial Corp. and Ameriquest Mortgage Co.
But there are vast differences between the 1930s and today. U.S. unemployment reached 25% during the Depression; last month it was reported at 4.8%. The worldwide industrial economy was in a shambles in the ’30s, thanks to World War I. Today it is coming off a global boom.
“I’ve been asked many times whether we will have another Great Depression,” says David M. Kennedy, a Stanford University history professor and the author of “Freedom From Fear,” a Pulitzer Prize-winning history of the Depression and World War II. “My standard answer is that we won’t have that one again — I’d be surprised to have one of that seriousness and duration. But that doesn’t mean we wouldn’t have a catastrophe we haven’t seen before.”
Economists and historians say the most important difference between today’s economic environment and that of the old days is the governmental response.
