People have been discussing whether or not we are heading into or are already in a new Great Depression. While I am hardly going to claim that our economy is strong I do think we take a bit of an overreach in calling it a depression. Just a simple look at the statistics demonstrates my point.
During the 2 year period between 1930 and 1932 the stock market lost over 80% of its value from the peak. The equivalent of that today would be a Dow of around 2900 (from the October 2007 peak). While we are certainly way down from the peak, we are nowhere near 2900 and not even the most pessimistic of forecasters would say we are going to reach that point.
During the peak of the Depression the unemployment rate was estimated to be as high as 30% (although the statistical models back then were a bit less detailed so it could have been 25% or 35%). Today we have unemployment at 8%, which is certainly not good but is not 25% either. Even if you assume that the current rate is off by 50% then we would have 12% versus 25% (assuming you go with the lowest figure).
Furthermore, the unemployment rate remained well above 10% throughout the 1930’s and again I do not think even the most negative of forecasts predicts that we would have such long sustained unemployment at double digit levels (indeed we have not even reached double digit yet).
The level of capital investment dropped from $ 16.2 billion in 1929 to $ 0.3 billion in 1932 which is a drop of 98%. Again, while the credit markets have dried up and while new investment is slowing, I do not think anyone is predicting a drop-off of 98% plus.
We saw GNP drop at rates of 15-20% during 1930 and 1931, while right now we have a drop of 6% and again, most see this as the bottom of the drop, going to 15% or more is not likely. On the banking side nearly half of the banks in the country failed while today the numbers are much smaller. In housing we saw over half of houses in foreclosure and even in the worst areas (one of which is my home town) we are not seeing numbers that bad.
I do not mean by this to suggest our economy is good or that we do not have some hard times ahead of us. But the numbers simply do not place us in a depression and the only thing that is going to send us that direction is if we manage to convince ourselves of that.
Happy words cannot solve our current problems, but overly negative ones can make it worse. We need to accept that some hard times are ahead but we also need to know that good times are also in the future and one of the ways to get there is for us to show some confidence.