I can see many parallels between the (first) Great Depression and what is emerging across the financial planet today, especially in the West. Below I summarise the Great Depression and consider how our modern world is travelling along a similar trajectory. Will taking this parallel path take us into the second Great Depression and an even more hellish destination beyond? 

The First Great Depression

The Great Depression was preceded by WWI, a financial indulgence that plunged governments into huge deficits. During the 1920’s governments pursued growth as a way to clear their debts processes that intentionally or not rewarded the strong and tolerated the weak. Countries implemented policies, such as lower taxes that reward the fittest, the strongest and reduced payments to the unproductive. Governments tried to achieve recovery by rewarding the strongest elements of society; banks failed, tax rates were lowered, unions were marginalised, the middle class were squeezed, poverty exploded while stocks surged only to in 1929 crash. With GNP falling and unemployment rising, countries then adopted self-protective actions; interest rates were lowered and trade tariffs were increased.

By 1932 shares were down hugely, globally thousands of banks had failed, bank deposits were lost and the money supply contracted, GNPs had collapsed, millions had lost their jobs, commodity prices had fallen as did international trade. The protective measures of lowering interest and higher tariffs designed to protect productive industries failed. The world was firmly in the grip of the first Great Depression.

With all fiscal options exhausted, money supplies were expanded, taxes were raised and governments spending increased.

The experience of depression was followed by wide spread political change; incumbent governments fell and were replaced by politicians offering a new deal, a new direction and most importantly hope. Initially these new governments created further instability and uncertainty, but eventually their new measures began to take hold and the slow long road of recovery began. Over the next few years GNPs, although patchy, generally rose and unemployment generally fell.

In 1936 Germany fully recovered from the Great Depression, a feat that was made possible through heavy deficit spending on their military. The United States only truly began emerging from the Depression In 1939 by borrowing and spending $1 billion, to build up its armed forces. Between 1939 and 1941 U.S. manufacturing exploded 50%! Economically the world had emerged…

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