Tuesday, 7 April 2009

Half a US Great Depression, every bit a world one

The first half of the title comes from Paul Krugman, in his comparison of this recession against the Great Depression, finding it half as bad (how big does something have to be to acquire capital letters?). It should be noted that the peak date presaged a long slow decline, which is important for comparing the implications with those below).

The second half of the title comes from this report, hat tip to the Economist's Free Exchange blog.
In summary, for the world as a whole, industrial output is falling in just the same way that it did in 1929-30, the stockmarkets are falling FASTER as is the volume of world trade (albeit from a higher base, but without the help of protectionism). They also assess the policy responses of leading economies and find that central banks were equally slow (6 months after peak industrial production) to cut rates, but that they have cut them further, despite starting from a lower base (this uses the Fed, Bank of England, ECB and the central banks of Japan, Sweden and Poland, and although it doesn't explicitly say it, I must assume Germany and France for the earlier response details - it says 7 countries). It predicts that policymakers won't repeat the 1931-2 error of hiking rates to maintain gold parity (or these days, dollar parity). It shows also that the money supply (this time across 19 countries, I assume this disparity is due to data availability) had risen far faster over the period 2004-08 than in 1925-1929. They believe that the money supply has continued to rise (despite quantitative easing, this is not automatic, since most money is created through lending, not printing) which it didn't in 1929 (before catastrophically collapsing in 1931). Finally, they show that fiscal stimuli offered by governments have been much greater than they were.

Basically, they summarise that the situation is FAR worse than 1929-31, but that our collective response has been much better, so things might end up worse, or not quite as bad as the 1930s.

My view: we're doomed (but then I'm not very good at prediction).

No comments:

Post a Comment