It’s Different This Time (Really!)

Comparisons of the Great Recession to the Great Depression are overdone.

When you put what happened in the ‘30s next to what’s happening now, the differences are huge. In the ‘30s, global output declined from 1929 until 1937, and fell by 40%. The current downturn hit bottom ten months ago at minus 13%, and has since rebounded to a 6% downturn. At this point in the Great Depression output was down over 20%.

What made the difference? Overwhelming force. The TARP program staved off a modern-day bank run. That had the potential to destroy significant wealth. The bank runs of the ‘30s did just that, and people didn’t trust banks again for a generation. By contrast, the bank and insurance failures this time around were modest.

I know people are worried about commercial real estate and sovereign risk, but these don’t have the potential to take down the banking system. It was tight money in the ‘30s that led to systemic bank failures so that global output just kept falling and falling and falling. That didn’t happen this time around.

So if we’re in recovery, when can we relax? I’ll respond with another question: when can we ever relax?

Douglas R. Tengdin, CFA
Chief Investment Officer
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