The case against Depression

WHILE it is true that there are similarities between the present day and the pre-Depression period - surplus countries unwilling to stimulate (Germany today), overproduction and the lack of a global engine - the question is whether it adds up to another Great Depression or a slow period of growth?

A more likely outcome to my mind is that rather than a collapse, we just get weak growth punctuated by bursts of policy easing which ultimately may only be resolved through inflation or debt write-offs. I am brought to this conclusion by the differences between today and the 1920s, which combine to produce a more benign economic environment and a greatly reduced risk of crisis.

Firstly, we should bear in mind that the US money supply contracted and the economy went into serious deflation during the Great Depression. By contrast, though the US is experiencing low inflation at present, its money supply continues to expand.