Pictures worth more than a thousand words

At website http://www.voxeu.org/ there is an interesting article "A Tale of Two Depressions" by Professor Barry Eichengreen, University of California, Berkeley and Professor Kevin H. O'Rourke, Trinity College, Dublin, there are some interesting charts in the article (reproduced below) that tracked the current economics performance with respect to that of the 1929 Great Depression.

To match the 1929 and the current statistical charts, the Professors dated the beginning of the Current global recession to April 2008 and that of 1929 Great Depression to June 1929.

The rate at which the global industrial output declined, it matched that of the Great Depression closely until June 2009. In the next 24 months if the decline follows a similar path, the current stock market rebound is definitely a bear market rebound.

Volume of world trade is shrinking at a more alarming rate than that during the first 12 months of the 1929 Great Depression.

The decline in global stock markets to date was worse than the first 12 months of the Great Depression. Are the current global markets going to hit the bottom within the next 12 months since it is moving down at a faster pace?

The comment by the two authors was : "Globally we are tracking or doing even worse than the Great Depression". A very bearish comment to the global economy.

The positive things in the current crisis are the way the governments pumped in money and lowered the interest rate. During the Great Depression, money supply collapsed and the interest rate has never gone below 3% as shown above. The average central banks discount rate is less than 1% currently. The fiscal policy of the governments is far more aggressive this time. During the Great Depression, the weighted average fiscal deficit for 24 leading economic powers was smaller than 4% of gross domestic product. In the current crisis US is heading for a fiscal deficit of 14% of the GDP.


I noticed the inconsistency in date assigned by the authors to the beginning of the global recessions. For the Great Depression the date assigned was June 1929, which is two months ahead of the August 1929 stock market peak whereas date assigned for the current recession at April 2008 is six months behind the stock market peak on October 2007. Maybe I should compare the dates with an average global stock market peak instead of DOW's peak. If based strictly on statistic, the economy in 1929 started to decline two months ahead of the stock market decline whereas in 2007/2008 the economy strarted to shrink 6 months after the stock market decline, so the saying that the stock market is 6 months ahead of the economy can be quite true.