Washington’s Blog
Wednesday, December 29, 2010
The following experts have – at some point during the last 2 years – said that the economic crisis could be worse than the Great Depression:
- Fed Chairman Ben Bernanke
- Former Fed Chairman Alan Greenspan (and see this and this)
- Former Fed Chairman Paul Volcker
- Economics scholar and former Federal Reserve Governor Frederic Mishkin
- The head of the Bank of England Mervyn King
- Nobel prize winning economist Joseph Stiglitz
- Nobel prize winning economist Paul Krugman
- Former Goldman Sachs chairman John Whitehead
- Economics professors Barry Eichengreen and and Kevin H. O’Rourke(updated here)
- Investment advisor, risk expert and “Black Swan” author Nassim Nicholas Taleb
- Well-known PhD economist Marc Faber
- Morgan Stanley’s UK equity strategist Graham Secker
- Former chief credit officer at Fannie Mae Edward J. Pinto
- Billionaire investor George Soros
- Senior British minister Ed Balls
How could that possibly be, when the stock market has largely recovered? (Let’s forget for a moment that the stock market rallied after 1929, but then crashed in a double dip).
To find out, we’ll look at a couple comparisons to get an idea of what is going on in the rest of the economy. And then we’ll compare the government’s efforts in the 1930s to today.
Housing Crisis Rivals Great Depression
As I noted last month, the current real estate slump rivals the Great Depression:
Zillow’s Stan Humphries said:
The length and depth of the current housing recession is rivaling the Great Depression’s real estate downturn, and, with encouraging signs fading, will easily eclipse it in the coming months.
During the Great Depression, home prices fell 25.9 percent in five years. The U.S. housing market is now down around 25 percent from its peak in 2006.
As housing price expert Robert Shiller pointed out in September 2008:
Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s [i.e. over a 10-year period]. With prices already down almost 20%, it’s not a stretch to think we might exceed that drop this time around.
As I wrote in December 2008:
In the greatest financial crash of all time – the crash of the 1340s in Italy …. real estate prices fell by 50 percent by 1349 in Florence when boom became bust.How does that compare to 2001-2007?The price of Southern California homes is already down 41%[that was before the first-time homebuyer credit, Hamp and other governmental programs temporarily boosted prices]. Southern California hasn’t fallen as fast as some other areas, and we’re nowhere near the bottom of the market.
Moreover, the bubble was not confined to the U.S. There was a worldwide bubble in real estate.
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