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July 17, 2009

Containing the recession

It's already been said that the current recession is the worst economic downturn since the Great Depression of the '30s. Once policy makers recognized the seriousness of the situation, did they take action to prevent the recession from turning into a depression?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"The scary thing is that two economists recently looked at the Great Depression - the first couple of years of the Great Depression - and compared the trends in the economy then to trends in the economy over the last two years. They found an eerie comparison. Their conclusion is if proper policy measures weren't taken, we were on track to have another Great Depression. They said, however, in their opinion, proper policy measures were taken, and they really credit those to averting another Great Depression. Specifically, the Federal Reserve has really taken dramatic action. They expanded credit availability over 100 percent in the last six months. In comparison, during the Great Depression, credit actually shrunk. Also, we had a greater increase in government spending . . . on a relative scale almost twice as much additional government spending in the last two years compared to the early 1930s. So in terms of this recession comparing to the Great Depression, it looks like the worst-case scenario was averted. We've not, for example, had the drop in banks - the bank failures. Fifty percent of banks failed in the Great Depression. Today, less than 1 percent have failed. And the unemployment rate is nowhere near the 25 percent that we saw during the 1930s. Now we still have challenges. In fact, a big challenge will be how to contain some of the costs related to what the government has done. But it does look like we have averted the worst case, with the worst case being another Great Depression."

Posted by Dave at July 17, 2009 08:00 AM