Such was the scale of the global market crash last week in the wake of the coronavirus outbreak, the spectre of the 1929 Wall Street rout and the ensuing Great Depression of the 1930s has been raised. Comparisons no longer seem fanciful.
The failure of the US and the UK to swing into action with a wide range of mitigation measures – despite the lessons of Italy’s slow response to the spread of Covid-19 – has heightened concerns that a sustained, epochal downturn lies in wait.
And a depression would mean an almost exact repeat of the same period one hundred years ago, when a deeply divided society and soaring stock markets during the 1920s gave way to a tortuously slow return to economic health during the 1930s in the wake of the 1929 stock market crash.
In the same way, the third decade of the 21st century could add another 10 years to the depression that followed the 2008 financial crash.
It took Franklin D Roosevelt’s huge injection of government funds under the banner of a New Deal to bring the US economy back to growth from 1933. For three years, the economy expanded until the US central bank intervened in 1937, repeating its mistake of only a few years before to increase interest rates and trigger another recession.
On 5 March, analysts at Citigroup wrote that the signs were looking grim. “The V-shape recovery theory has been significantly challenged, as investors correctly entertain the idea of a far more protracted recovery.” [Continue reading…]