Young whippersnappers think they know it all don't they? My arthritis is worse than this 'crisis'. Seems like every time a CEO has an ingrown toenail or the tape in the ticker machine runs out, every dumb cluck throws his hands up in the air, crying about recession and the end of the world.

Baloney!

Back in my day, we came damn close to hellfire mind! I'm not just talking about waking up at 4am as a young broker and walking twenty miles through a blizzard to get to Wall Street. We had Hoovervilles, we had 25 percent unemployment and whammo, 90 percent of the stock exchange was wiped out. For dessert, we had a little something called World War 2. And no-one except ol Freddie Roosevelt sitting by his fireplace to guide us through all the market malarkey on the wireless.

'Crisis' has cheapened

Old guy may have a point you know. The dot com travails of 2002, Japan's nervous nineties and the market crash of 1987 all produced odious comparisons to the Great Depression. "The nomenclature of the word 'crisis' has cheapened," said Roy Smith, a professor at New York University's Stern School of Business and former partner at Goldman Sachs.

"No one disputes that it is a profound crisis, but Depression-level may be overdoing it," said magazine columnist Allan Sloan. "I don't think so, considering that the Great Depression had thousands of banks failing and people losing their life savings," Sloan added.

According to FNB Chief Economist Cees Bruggemans, comparing the Great Depression to the current global meltdown is like juxtaposing a simple flu with all the complexities of radiation exposure. "2007-2009 is really different in nature from 1929. It is also different in size and complexity. Incomparably bigger and more complex."

A lot of zeroes

Whereas the roaring twenties closed with banks running out of cash and standard liquidity issues, the first decade of the new century has rotten, horribly over-leveraged balanced sheets at its core. Bruggemans points out that 15 months in, the bill is $800-billion with a mammoth $2-3-trillion potentially in jeopardy. That's a lot of zeroes, but still a far sight from the 1930's, followed by WW2.

Arthur Kamp, an Economist at Sanlam Investment Management, told Business Times that in the 1930s easy money encouraged speculative activity, which drove stock prices to levels not consistent with economic fundamentals.

"We had a stock market bubble that burst," said Kamp. "But an inappropriate policy response must take at least part of the blame for the subsequent onset of an economic depression."

The US Federal Reserve hiked interest rates, fearing a return of speculation after the stock market collapse. Analysts say this caused the Great Depression. Equity markets lost 90 percent of their value in 1929 and recovered only 15 years later in 1954.

Let's look at the parallels and disparities between contemporary events and those of 80 years ago.

Uneven distribution of income and social stratification are as much a feature of capitalist society today as it was then. Statistics show that five percent of the US population earned a third of personal incomes in 1929. Today that figure is 6.4 percent.

Scams and monsters

Arthur J Brown and Fidentia. The SocGen billions. Enron, WorldCom, EADS. "A kind of flood tide of corporate larceny" and numerous scams illustrate the bad business structure that has persisted through the century. Income earmarked for expansion became a forgotten memory as fortunes dwindled and the debt monster devoured more and more funds through its cavernous jaws.

In 1929, smaller banks savaged their larger brethren in a domino effect of investor panic. In 2009, large banks that have resisted risky exposure are poised to emerge from the crisis stronger than ever. Bailouts and fire sales are the order of the day in a volatile environment where competition authorities don't get a look in and the soft socialist underbelly of the US economy is feted instead of being derided by the ultra-capitalists.

Can the famously lithe US economy export its way out of trouble? The days of roaring twenty trade deficits financed by accumulating global debt have long been reversed. Today, it is the US that lies at the mercy of its creditors and not the other way around.

Benefit of hindsight

Perhaps the most potent weapon in the armoury of policymakers today is the benefit of hindsight. Close behind this blunder was an obsessive fear of inflation. This blocked any possibility for dropping interest rates or stimulating the use of credit. Those making the rules back then had no idea that deflation is a far greater economic foe. "In its own way this was a triumph of dogma over thought. The consequences were profound." Doctors Bernanke and Paulson have a precedent to work with when writing out that prescription for this patient.

In his epic portrait of the abject desperation of Californian labourers in the Great Depression, Grapes of Wrath, John Steinbeck carves out perhaps the most poignant conclusion in all literature.

A teenage Rose of Sharon commits the only act in the book that is not futile: she breastfeeds a starving man, still trying to show hope in humanity after a stillbirth. This final act is said to illustrate the spontaneous mutual sharing that leads to a new awareness of collective values. Although the crisis may have a long and thorny path to walk before working itself out, there is some comfort to be found in the resurgence of the long-slumbering ideals of prudence, patience and social responsibility, the bedrock of a new prosperity.

  • Which is worse; the Great Depression or the current global meltdown? Let us know what you think!


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