Current times and the Great Depression
Open any newspaper these days, and there is a good chance that the phrase “worst financial crisis since the Great Depression” will appear on at least one of its pages. It makes for dramatic copy, but how do present conditions really compare with those in the 1930s?
Share markets
Most historical attention is directed at what happened on the US share market before the Depression. After peaking in September 1929 the US share market bottomed in July 1932, by which time the Dow Jones Industrial Average had lost 89% of its value. It would take more than 20 years for it to regain its former high point.
In Australia the story was less dramatic. The local share market lost 46% of its value, but it recovered relatively quickly and by 1935 it was above its previous record.
This time around, the Australian share market has matched that 46% fall and could go lower. On this statistic at least, we are rivalling the Great Depression.
Unemployment
Many of the enduring images of the Great Depression are of long lines of unemployed people seeking work or food. In Australia unemployment peaked at 32% in the middle of 1932. In the absence of any government unemployment programs, the social impact of a high rate of unemployment was also much greater than would be expected today.
A year into this downturn, Australian unemployment remains steady at 4.3%. It is expected to rise, but only marginally, so we are a very long way from experiencing the social dislocation that occurred in the early 1930s.
Government response
A reduction in government capital spending made a significant contribution to the severity of the Great Depression. This time around, there is a concerted effort by governments around the world to stimulate the economy by pumping many hundreds of billions of dollars into the system. Also, monetary policy in the 1930s was in the hands of private banks. Today, central banks are cooperating by slashing interest rates, easing the pressure on borrowers and providing further stimulus to spending.
An unfair comparison
Aside from the performance of the Australian share market, current times demonstrate few similarities with the Great Depression. The world is both wealthier and more cooperative than it was in the 1930s. We have completely different technologies and social security programs. The financial industry appears to be in for much greater global regulation, but for most people there is good reason to believe that this “crisis” will come and go with minimal long-term effect.
Sources:
www.cultureandrecreation.gov.au/articles/greatdepression/
http://www.asx.com.au/products/pdf/share_price_movements.pdf
http://en.wikipedia.org/wiki/Stock_market_crash
http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6202.0
http://www.rba.gov.au/Statistics/cashrate_target.html