What the World's Great Recession Looks Like

Yesterday I posted four graphs showing that although the collapse in US home prices and our federal deficit is without precedent, the country is still tracking better than the Great Depression in just about everything else. We're not experiencing (yet) either Depression-era deflation or even average-recession inflation. US trade is beginning to rebound slightly. Our industrial production falloff isn't even close to the early '30s, and our unemployment, while historically terrible, isn't Depression-vintage.

But today I got my hands on alarming graphs from the folks at VoxEU (via a column by Martin Wolf) which convincingly demonstrates that, for the much of the world, 2009 looks, without question, just as bad, if not worse, than the first years of the Great Depression.



The study, which you might have seen, by Barry Eichengreen and Kevin H. O'Rourke, assumes the starting date of April 2008 and compares the current worldwide recession to the worldwide depression that began in June 1929. Here's the digest of most significant indicators.

And here's a look at the devastation on industrial output in four major European countries. If you can't read the print, they are (clockwise, from top-left:) France, Germany, UK, Italy. One thing to note is that the percentage of industrial drop-off in Italy is already worse than the UK's 40-month low in 1932.

Where are the silver linings? The good news is that the world is responding much quicker to the crisis of 2008-9 compared to the Great Depression. Central bank interest rates rates are lower all over the world and monetary expansion has been much more rapid this time around. At the same time, Martin Wolf cautions that world governments will be faced with a rock-and-a-hard place dilemma with regard to fiscal stimuli and monetary policies. One the one hand, we don't want to repeat the mistakes of 1937 America or 1990s Japan and double dip into recession by pulling back too soon. On the other hand, the danger of stimulus being withdrawn too late is "a loss of confidence in monetary stability worsened by concerns over the sustainability of public debt, particularly in the US, the provider of the world's key currency."