Transcript The Great Depression and Great Recession October 3, 2011 Jim Butkiewicz University of Delaware.

The Great Depression
and Great Recession
October 3, 2011
Jim Butkiewicz
University of Delaware
Comparisons
The recent Great Recession has resulted
in significant economic losses and
personal suffering
 Still, the Great Depression was far worse

Real GDP
140
120
Value relative to cycle peak
100
80
Depression
08-09 Crisis
60
40
20
0
1
2
3
4
5
6
7
8
9
Years (Year 1 is peak)
10
11
12
Consumer Prices
120
100
Value relative to peak
80
Depression
60
08-09 Crisis
40
20
0
1
6
11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111 116 121 126 131
Months (Month 1 January of peak year)
Unemployment Comparison
30
25
Rate (Percent)
20
Depression
15
08-09 Crisis
10
5
0
1
2
3
4
5
6
7
8
9
10
11
12
Years (Year 1 is cycle peak)
13
14
15
Recovery from the Depression

Treasury’s expansionary monetary policy
IIP*CPI and M2
250
200
Index
150
IIP*CPI
M2
100
50
0
Recovery from the Depression
Treasury’s expansionary monetary policy
 Fiscal policy not expansionary
 Bank lending stagnant $20 - $22 billion
 Federal lending by new agencies

◦
◦
◦
◦
◦
Home Owner’s Loan Corporation
Federal Farm Mortgage Corporation
Reconstruction Finance Corporation
Commodity Credit Corporation
U.S. Housing Authority and Federal Housing
Administration
60.00%
Gross Federal and Agency Debt - % of GNP
US Gross and Agency Debt
Percentage of GDP
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
US Gross Debt
60
50
US Federal Debt
Combined US and Agency Debt
Billions of $
40
US Gross Debt
30
20
10
0
The Great Recession
The downturn was due to a real shock –
the bursting of the housing bubble
 Initially expansionary monetary response
became contractionary, but has since
reversed
 Impact of fiscal stimulus questionable

◦ State and local governments constrained and
have significant unfunded liabilities
Fiscal policy now constrained unlike
depression
 Bank lending a constraint

Growth Rate (Year over year)
-2.00%
-4.00%
-6.00%
2012-01-01
2011-01-01
2011-05-01
2011-09-01
2010-01-01
2010-05-01
2010-09-01
2008-09-01
2009-01-01
2009-05-01
2009-09-01
2007-09-01
2008-01-01
2008-05-01
2006-09-01
2007-01-01
2007-05-01
2005-09-01
2006-01-01
2006-05-01
8.00%
2004-09-01
2005-01-01
2005-05-01
2003-09-01
2004-01-01
2004-05-01
2002-05-01
2002-09-01
2003-01-01
2003-05-01
2001-05-01
2001-09-01
2002-01-01
2000-05-01
2000-09-01
2001-01-01
1999-05-01
1999-09-01
2000-01-01
1999-01-01
12.00%
Real GDP and M2 Growth Rates
10.00%
M2 Growth (1 Year Lag)
6.00%
4.00%
2.00%
Real GDP Growth
0.00%
You are known by the company
you keep
2011-05-01
2011-01-01
2010-09-01
2010-05-01
2010-01-01
2009-09-01
2009-05-01
2009-01-01
2008-09-01
2008-05-01
2008-01-01
2007-09-01
2007-05-01
2007-01-01
2006-09-01
2006-05-01
2006-01-01
2005-09-01
2005-05-01
2005-01-01
2004-09-01
2004-05-01
2004-01-01
2003-09-01
2003-05-01
2003-01-01
2002-09-01
2002-05-01
2002-01-01
2001-09-01
2001-05-01
2001-01-01
2000-09-01
2000-05-01
2000-01-01
1999-09-01
1999-05-01
1999-01-01
Billions of $
Total Loans & Leases - All Commercial Banks
8000.0
7000.0
6000.0
5000.0
4000.0
3000.0
2000.0
1000.0
0.0
Remaining Hurdles

Administration’s anti-business attitude
and policies (Obama similar to FDR)
◦ Uncertainty regarding health care policy
◦ Uncertainty about regulation
◦ NLRB – Boeing decision

Continuing housing deflation
Nominal House Prices and Consumer Prices
9
8.5
Logarithmic Value
8
7.5
7
6.5
Consumer Prices
6
House Prices
5.5
5
4.5
4
1880
1900
1920
1940
1960
Year
1980
2000
2020