I think references today to The Great Depression are misplaced. Two recent articles note the differences between today and the 1930s.
First, from The Telegraph
[I]t is not yet like 1933. That second leg down was the result of "liquidation" policies by a Dickensian leadership blind to the dangers of debt deflation. By then the Gold Standard had degenerated into an instrument of torture. It forced the Fed to raise rates from 1.5pc to 3.5pc in October 1931 to stem gold loss, with predictable results for shattered banks.
It is worth glancing at the front page of New York Times on Monday March 6, 1933 to see what the world looked like three days after Franklin Roosevelt moved into the White House.
The newspaper splashed with the story that FDR had closed the US banking system – invoking the Trading with Enemies Act – and ordered the confiscation of private gold. From left to right, the headlines read: "Hitler Bloc Wins A Reich Majority, Rules Prussia"; "Japanese Push On In Fierce Fighting, China Closes Wall, Nanking Admits Defeat"; "City Scrip To Replace Currency"; "President Takes Steps Under Sweeping Law of War Time"; "Prison For Gold Hoarders". ...
Roosevelt took over a country where the economic machinery had completely broken down. The New York Stock Exchange and the Chicago Board of Trade had closed. Thirty-two states had shut their banks. Texas had restricted withdrawals to $10 a day.
Few states could borrow on the bond markets. Illinois and much of the South had stopped paying teachers. Schools closed for months. An army of 25,000 famished war veterans squatting in view of Congress had been charged by troopers of the 3rd US cavalry with naked sabres – led by a Major George Patton.
Armed farmers threatening revolution had laid siege to a string or Prairie cities. A mob had stormed the Nebraska Capitol. Minnesota's governor was recruiting Communists only for the state militia. Lawyers attempting to enforce foreclosures were shot. More than 100,000 New Yorkers applied to go to the Soviet Union when Moscow advertised for 6,000 skilled workers.
We forget how close America came to open revolt. Eleanor Roosevelt feared the country was beyond saving. Her husband kept the faith. He channelled the anger against Wall Street, diffusing it. "The practices of the unscrupulous money-changers stand indicted in the court of public opinion," he began his presidency.
The Fed was an ideological deadweight. Bowing to pressure from Congress it began to purchase bonds in mid-1932 to boost the money supply, but then recoiled, before retreating into pitiful self-justification. A third of the rescue funds in Hoover's Reconstruction Finance Corporation had been embezzled.
The environment is very different today.
Today there has been no such failure of US institutional imagination, even if, as George Soros argues, the Treasury's policies have been "haphazard and capricious".
The twin blasts of fiscal and monetary stimulus have been massive. In short order the Fed has slashed rates to zero. It is now conjuring money out of thin air on an industrial scale, buying $600bn of mortgage bonds to force down the cost of home loans, and propping up the commercial paper market to avoid mass corporate default. Ben Bernanke, a Depression junkie, is proceeding with a messianic sense of certainty. The wash of money should ensure that the next 18 months will not mimic the cascade of disasters from late 1931 to early 1933.
I do not agree entirely with the reading of history of The Great Depression at Popular Delusions, However, the author does point out several salient facts about The Depression.
One of the reasons I think it important to understand these events more clearly is because globally (and in strictly economic terms) the events of 1931 marked the high watermark of the crisis. The countries which came off the gold saw their economies recover soon afterwards. ...
FDR's election helped trigger a third round of banking collapses when he came to office. After winning the 1932 election he hinted without ever confirming that he would take the US off gold. But he wasn't to be inaugurated until March 1933. For four months there was no one in charge and the uncertainty and fear that yet another government would devalue it's currency against gold as most of the Europeans had just done caused another panic as investors rushed for the exits. While the US remained on the gold standard, gold still formed the basis for the banking system's reserves which formed the basis for the economy's outstanding stock of credit, so the sudden gold outflow caused another sharp contraction in the money supply, another wave of banking collapses and another nosedive into recession ...
There is currently a credit crunch, though it has eased somewhat over the past month. However, the government and the Fed are working madly to unfreeze it, unlike during The Depression when the Fed and the government were late in addressing the credit contraction, even raising interest rates during the Depression to stem the outflow of gold.
Thus, I think the analogies of The Depression to today are incorrect.