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Tuesday, December 02, 2008

Bernake Credit Crisis is ‘no comparison’ to Great Depression

Yesterday Federal Reserve chairman Ben Bernanke said the current economic situation bears "no comparison" to the much deeper crisis of the 1930s Great Depression.

During a Q&A session in Austin Texas, Bernanke said
"Well, you hear a lot of loose talk, but let me just ... say, as a scholar of the Great Depression -- and I've written books about the Depression and been very interested in this since I was in graduate school, there's no comparison."
Bernanke also said there is "an order-of-magnitude difference" between now and the Great Depression of the 1930s.
  • "During the 1930s, there was a worldwide depression that lasted for about 12 years and was only ended by a world war"

  • "During that time, the unemployment rate went to 25 percent, at least, based on the data that we have. The real GDP (gross domestic product) fell by one-third. About a third of all of the banks failed. The stock market fell 90 percent."

  • "very difficult circumstances... we didn't have the social safety net that we have today. So let's put that out of our minds; there's no -- there's comparison in terms of severity."

  • "We're very lucky to live in a country as rich and diversified as the one we have. And I hope that we will have a quick and rapid recovery from the current slowdown."

  • "We have learned from that experience that monetary policy has got to be proactive and supportive of the economy in a situation of difficult financial conditions."

  • "The other part was -- the other error, the big mistake that policymakers made in the early '30s was they essentially allowed the financial system to collapse and they didn't do anything about it. The Federal Reserve did no action as the banks failed by the hundreds and the thousands."
This agrees with statements from ECRI, the Economic Cycle Research Institute. In the story "Recession? Yes. Depression? No." Lakshman Achuthan, managing director of the ECRI, said the continuing decline of their weekly leading index, WLI, means there will be no recovery in the next half-year, and that this recession will be at least as severe as that in the 1970s. It does not mean we're headed for a depression, a word being used carelessly by some. Achuthan said
"When we look at the leading index during the depression in the 1920s and the Great Depression in the 1930s, it was much, much worse, materially worse, much deeper and nothing like we've seen so far"
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