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Avoiding The Great Depression II
The markets are falling again, as we're sure you're aware, but let's not forget that few serious forecasters are predicting the worst (apart from a number of survivalists in the comments pages, and we think they're looking forward to the prospect of hoarding soup and shooting their neighbours). The IMF said the chances of a global depression were virtually nil.
Closer to events in London, Hamish McCrae lists six factors which he says show that we're not going back to the Thirties.
"First, what is happening now follows a long period of rising prosperity, the longest such period the world has ever known. In the 1930s the world was still recovering from the destruction of half the accumulated wealth of the 19th century.
"Second, there were deep rivalries and even hatreds between major nations that made economic co-operation virtually impossible and encouraged the rise of trade barriers and competitive devaluations. As a result world trade halved, making recovery very difficult.
"Third, the US allowed many banks to go bust, leading to a breakdown in commercial activity. The US has a deeper recession than any other major nation. This time, pace Lehman, it will patch things up.
"Fourth, countries followed what they thought were sound fiscal policies, trying to balance their budgets, cutting spending as their tax revenues fell. This time budget deficits will be allowed to rise.
"Fifth, price levels in the 1930s were falling, so even very low nominal interest rates were high in real terms and investment funds were therefore expensive. Now prices are rising so low interest rates are more likely to boost investment.
"Finally, global demand will be maintained by China, which in the 1930s was not a force in world trade. Now it is probably the world's third largest economy, so though much of the developed world may go into some sort of recession, we are not talking a decline for the world as a whole.
"So yes, maybe something like the early 1990s, though that is not at all certain, but the 1930s? Unless something unspeakably dreadful happens in the coming months, absolutely not."
