Could 2008 be another 1929?

This is a question being asked this week as we witness one of the most dramatic downturns in US economic history. But are we on the verge of another great depression? Economist Robert J. Samuelson says “œnot even close” in his column appearing in the October 13 issue of Newsweek.

Samuelson states that economic downturns hardly ever evolve into national tragedies. In fact, the US has been through 10 recessions since the late 40’s. While they did have a very real effect on the economy and of the people living through them, they actually only lasted for an average of 10 months. The two worst were from 73 to 75 and in 81 to 82. Both lasted 16 months and unemployment rates peaked at nearly 11%, well above the average for the other recessions of 7.5% and of the current rate of 6%.

Coinciding with the number of recessions over the last 60 years are the number of bear markets. Since WWII the number of bear markets has also been 10. A bear market is one in which the S&P Index declines at least 20% from the most recent peak. The average of all post war bears was just over 31% . The .com crash of the nineties witnessed a fall of over 50% and last week the market was down 30% from one year ago.

Compare all of this to the Great Depression, where the market lost a whopping 90% of its value resulting in nearly a decade of hard times. Most economist agree that this is not likely in today’s environment where the Federal Reserve is actively injecting funds into the finance sector, unlike the Federal Reserve of 1929 that did relatively nothing to prevent the collapse of the US economy.