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World Economy Falling Faster Than in 1929-1930



April 12, 2009 – Comments (4)

A great blog with can't miss charts comparing the current collapse to the Great Depression. Here's the link and a few excerpts. You'll have to click on the link to see the charts...again, you don't want to miss them!

World Economy Falling Faster Than in 1929-1930

Barry Eichengreen, an expert on the Great Depression, and Kevin O'Rourke, take issue with the notion that the current downturn is less severe than the Great Depression. While the slump in the US is not as bad, that mis-states the global picture...

This and most other commentary contrasting the two episodes compares America then and now. This, however, is a misleading picture. The Great Depression was a global phenomenon. Even if it originated, in some sense, in the US, it was transmitted internationally by trade flows, capital flows and commodity prices. That said, different countries were affected differently. The US is not representative of their experiences.

Our Great Recession is every bit as global, earlier hopes for decoupling in Asia and Europe notwithstanding. Increasingly there is awareness that events have taken an even uglier turn outside the US, with even larger falls in manufacturing production, exports and equity prices.

In fact, when we look globally, as in Figure 1, the decline in industrial production in the last nine months has been at least as severe as in the nine months following the 1929 peak. (All graphs in this column track behaviour after the peaks in world industrial production, which occurred in June 1929 and April 2008.) Here, then, is a first illustration of how the global picture provides a very different and, indeed, more disturbing perspective than the US case considered by Krugman, which as noted earlier shows a smaller decline in manufacturing production now than then...

Another area where we are “surpassing” our forbearers is in destroying trade. World trade is falling much faster now than in 1929-30 (Figure 3). This is highly alarming given the prominence attached in the historical literature to trade destruction as a factor compounding the Great Depression...

To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimize this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event...

To summarize: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.

4 Comments – Post Your Own

#1) On April 13, 2009 at 12:12 AM, usmilitiadude (< 20) wrote:

Jail the fraudulent bankers!!! Kick Congress out. Pass it on.....tell everyone you talk to tomarrow. Before you know it, Kevin Bacon will hear about it. Do we want justice?

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#2) On April 13, 2009 at 12:55 AM, portefeuille (98.88) wrote:

Krugman commented on one of those charts. I found the inventory bounce effect he mentions towards the end somewhat interesting ...

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#3) On April 13, 2009 at 3:57 AM, Chromantix (91.15) wrote:


I've seen this linked a half-dozen times and think it needs to be passed far and wide.  Let those who can refute, let those who can not be silent. The more eyes the better.

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#4) On April 13, 2009 at 11:02 AM, EHoyle80 (< 20) wrote:

Greatest stock rally in history? Time for a little perspective, says the Stock Research Portal. “The global stock index is still down more than 12% in Q1 2009 after losing 22.7% in Q4 2008.”Conclusion: “Always consider changes (up or down) in the context of absolutes.”

Via Stock Research Portal

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