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Watch: Is the Second Great Depression approaching? The case against

In the second part of a two part series in which we debate whether we are on the verge of a depression akin to that which hit in 1929, Chief Economist and Strategist Keith Wade presents three reasons why we will not see a repeat of the Great Depression today. 

19/08/2015

Keith Wade

Keith Wade

Chief Economist & Strategist

The case against the second Great Depression

I can see a number of parallels and similarities between the 1920s and today, but the world today is different as the factors which turned a downturn into a depression are far more constrained.

  1. In the 1920s the money supply contracted and there was a major collapse in the banking system in the US. We are not seeing that today and there is unlikely to be a repeat because the Federal Reserve underwrites the banking system, preventing a collapse.
  2. Today we no longer have the Gold Standard, which played a big part in transmitting the shock from the US to the rest of the world. Today we have very divergent monetary policy: although the Federal Reserve is preparing us for an interest rate increase the Bank of Japan and the ECB are keeping policy very loose with quantitative easing, which is a big support to global activity.
  3. Trade is nothing like as weak as it was during the depression when it contracted by about 30%. During that period we had tariff wars, protectionism, we had real problems which we are not seeing today.

We are not about to enter a second Great Depression, but growth will remain sluggish by past standards.

See Craig Botham set out his case for a second Great depression

 

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