The Economy Is Worse than During the Great Depression

by WashingtonsBlog

Underneath the Propaganda, the Economy Is In BAD SHAPE …

We noted in 2013 that the British economy is worse than during the Great Depression.
The Washington Post’s Wonkblog pointed out in August that Europe is stuck in a “Greater Depression” … worse than the Great Depression.
Well-known economist Brad DeLong agrees. As does Paul Krugman.
Historian, economist and demographer Neil Howe provided the following charts via Forbes last month, showing how dire the situation is in Europe:


The chart for the U.S. doesn’t look as bad …
But as Howe notes:

These figures don’t mean that the Depression was definitely worse. Though it was deeper, it … likely will be shorter than the Great Reces­sion in the United States. The recovery in the ‘30s occurred much faster than it has in recent years.
***
What’s more, from 1933 on, U.S. GDP grew at a blistering average rate of over 8% per year for the next eight years. And that includes one recession year: 1938. By 1941, 12 years after the Great Depression began, U.S. GDP was 41% higher than its pre-downturn figure. This is almost certainly a much higher level, relative to 1929, than the United States will see by 2019, relative to 2007.

Indeed, Pulitzer prize-winning economic reporter David Cay Johnston showed last year that Americans bounced back faster after the Great Depression than the “Great Recession”.
As we pointed out in 2012, the much-hyped “recovery” may be a myth:

What Do Economic Indicators Say?

We’ve repeatedly pointed out that there are many indicators which show that the last 5 years have been worse than the Great Depression of the 1930s, including:

• The housing slump

• The bank charge off rate

• The collapse in world trade

• The withdrawal of short-term credit

• The level of inequality between rich and poor (too much inequality destroys economies)

• The interconnectedness of financial systems and economies worldwide (interconnectedness leads to financial instability)

• Runaway spending and greed

Mark McHugh reports:

Velocity of money is the frequency with which a unit of money is spent on new goods and services. It is a far better indicator of economic activity than GDP, consumer prices, the stock market, or sales of men’s underwear (which Greenspan was fond of ogling). In a healthy economy, the same dollar is collected as payment and subsequently spent many times over. In a depression, the velocity of money goes catatonic. Velocity of money is calculated by simply dividing GDP by a given money supply. This VoM chart using monetary base should end any discussion of what ”this” is and whether or not anybody should be using the word “recovery” with a straight face:

In just four short years, our “enlightened” policy-makers have slowed money velocity to depths never seen in the Great Depression.

[It’s gotten much worse since then.]

(As we’ve previously explained, the Fed has intentionally squashed money multipliers andmoney velocity as a way to battle inflation. And see this)
Indeed, the number of Americans relying on government assistance to obtain basic foodmay be higher now that during the Great Depression. The only reason we don’t see “soup lines” like we did in the 30s is because of the massive food stamp program.
And while apologists for government and bank policy point to unemployment as being better than during the 1930s, even that claim is debatable.

What Do Economists Say?

Indeed, many economists agree that this could be worse than the Great Depression, including:

• Fed Chairman Ben Bernanke

• Former Fed Chairman Alan Greenspan (and see this and this)

• Former Fed Chairman Paul Volcker

• Economics scholar and former Federal Reserve Governor Frederic Mishkin

• The head of the Bank of England Mervyn King (and see this)

• Nobel prize winning economist Joseph Stiglitz

• Nobel prize winning economist Paul Krugman

• Former Goldman Sachs chairman John Whitehead

• Economics professors Barry Eichengreen and and Kevin H. O’Rourke(updated here)

• Investment advisor, risk expert and “Black Swan” author Nassim Nicholas Taleb

• Well-known PhD economist Marc Faber

• Morgan Stanley’s UK equity strategist Graham Secker

• Former chief credit officer at Fannie Mae Edward J. Pinto

• Billionaire investor George Soros

• Senior British minister Ed Balls

Bad Policy Has Us Stuck

We are stuck in a depression because the government has done all of the wrong things, and has failed to address the core problems.
For example:

• An economics professor says we’ll have “a never-ending depression unless we repudiate the debt, which never should have been extended in the first place”

• Fraud was one of the main causes of the Depression, but nothing has been done to rein in fraud today. Indeed, the only action the government is taking is to help cover up fraud

• All leading independent economists have said that the economy cannot recover until the big, insolvent banks are broken up, but the government has just helped them to get bigger

• Excessive leverage helped cause the Great Depression and the current crisis, but the government has encouraged more leverage

• The Federal Reserve caused the Great Depression and the current crisis, and has done nothing but help the fatcats at the expense of the little guy. And yet the government has given the Fed more power than ever.

• Government policies send manufacturing jobs and dollars abroad

• The government is doing everything else wrong. See this and this

Quantitative easing won’t help … it will only make things worse.
This isn’t an issue of left versus right … it’s corruption and bad policies which help the super-elite but are causing a depression for the vast majority of the American people.
The government and the banks are doing all of the wrong things. See this and this.

And Europe is doing all of the wrong things, as well:

If a patient is bleeding out, doctors have to suture the wounds before they decide whether to give more blood or to taper off the amount of transfusions.
But Europe has never treated the wounds …  As we noted in 2011, failing to prosecute financial fraud – on either side of the Atlantic – is extending the economic crisis.
In 2012, we pointed out that European (and American) governments were encouraging bank manipulation and fraud to cover up insolvency … trying to put lipstick on a pig.
Indeed:

• Fraud was one of the main causes of the Great Depression, but nothing has   been done to rein in fraud today.  Iceland is the only European country that did it right

• Quantitative easing hurts the economy. Even the Bank of England and the creators of QE admit that it is “pushing on a string“.  But the UK did tons of QE instead of actually fixing the economy

• An economics professor says we’ll have “a never-ending depression unless we repudiate the debt, which never should have been extended in the first place”

• Europe’s sanctions against Russia are backfiring, wounding Europe’s already-struggling economy more than Russia’s

• Authoritarian actions by the government interfere with the free market, and thus harm prosperity.   Personal freedom and liberty – and freedom from the arbitrary exercise of government power – are strongly correlated with a healthy economy.  A strong rule of law is the main determinant of GDP growth. Trust is essential for a healthy economy.   But the EU has usurped the sovereign power of European countries … and many commentators believe that Europeans are losing freedom, liberty and the rule of law

Heck of a job, guys …