The Great Depression Revisited?

There has been a lot of commentary in the news over the last several months comparing our current economic turmoil to the Great Depression of the 1930s. There are a number of similarities to the two situations. But there are also a number of significant differences.

For a terrific second look at the Great Depression you could not do better than picking up a copy of The Forgotten Man, by Amity Shlaes. Liberals today want to blame 20 years of financial deregulation (under both Democrat and Republican presidents, by the way) for our current woes. Conservatives want to blame liberal tendencies to use the free market for social engineering (think Freddie Mac and Fannie Mae).

Writing about the Depression, Shlaes says that "...neither the standard history nor the standard rebuttal entirely captures the reality of the period." The same can be said for the current recession.

Other similarities between the two periods:

• Both were preceded by a severe downturn in the financial markets
• The downturns in each case were preceded by several years of terrific growth--the "Roaring '20s " and the "irrational exuberance" of the early to mid part of this decade
• Both downturns were fueled by overuse of leverage--margin trading in the 1920s and a variety of no money down mortgage products, designed to put people who might not normally qualify for loans into homes and fueled by the Federal Reserve's cheap money policy.

However, there are also a number of significant differences that make the current situation vastly different from your grandfather's Depression. But these are facts for another day.

Just thought you might like to know.