The Great Similarity--Not!!

One can ask how much damage the Great Depression of 1929 can do. There has been so many analogies relating the current Crisis with the Period economy, while the actual similarity between Then and Now is hard to maintain. Banks failed in the 1930s because local Businesses could not sustain the loss of Consumer Demand in their Localities, and subsequently could not pay for the Operating Credit they had arranged with local Banks prior to the Consumption dropoff. Banks, already overextended by Speculation in the Markets before the Crash and having lost their Reserve liquidity, could not withstand the Depositor draft from their Accounts. The relevant Points are: massive loss of Consumer Demand; Bank over-Speculation of Liquidity funds; Business operational inability to continue Production operations under the old financial arrangements; and no ability to restore liquidity to Banks or Business in the system.

Current circumstance is much different. Consumer Demand has not faded, it has only contracted by a minor Percentage degree due to the availability of extended Consumer Credit. The Bank over-Speculation had been near identical, yet Authorities have thought to purchase this bad Paper for the American Taxpayer. Consumption decline has been so shallow that Business operations can be sustained, if they had been successful before the Contraction. The Fed and Treasury threaten to drown the Economy in excess Cash. It remains to be seen how divergent the two Sets of circumstances will finally be, but the two Situations may be exactly opposite.

What no one discusses about either of the two Recessions consists of the slow erosion of economic function during the subsequent years. Employment contracted in great Sweeps after 1929, but was not that genetically different from previous practice; somewhat similar to Today what with Downsizing and Business reorganizations. The Telling Cost for Employment, Then and Now, was/is the ability of the Economy to create replacement Jobs. The Economy of the 1930s continued to decline until Job Creation again became a force in the Economy. It is undoubted that any effort in this Crisis will attain lasting economic performance, until We fix the Job Creation engine. lgl