Late-2000s Recession - Comparisons With The Great Depression

Comparisons With The Great Depression

Main article: Comparisons between the Great Recession and the Great Depression

On April 17, 2009, the then head of the IMF Dominique Strauss-Kahn said that there was a chance that certain countries may not implement the proper policies to avoid feedback mechanisms that could eventually turn the recession into a depression. "The free-fall in the global economy may be starting to abate, with a recovery emerging in 2010, but this depends crucially on the right policies being adopted today." The IMF pointed out that unlike the Great Depression, this recession was synchronized by global integration of markets. Such synchronized recessions were explained to last longer than typical economic downturns and have slower recoveries.

Olivier Blanchard, IMF Chief Economist, stated that the percentage of workers laid off for long stints has been rising with each downturn for decades but the figures have surged this time. "Long-term unemployment is alarmingly high: in the United States, half the unemployed have been out of work for over six months, something we have not seen since the Great Depression." The IMF also stated that a link between rising inequality within Western economies and deflating demand may exist. The last time that the wealth gap reached such skewed extremes was in 1928–1929.

Concerning unemployment, during the 1980–1982 recession, unemployment peaked at nearly 11% (10.8%) in November 1982 and remained above 10% from September 1982 through June 1983. Unemployment remained over 8% through January 1984 before dipping lower. By contrast, unemployment peaked at 10% in October 2009 for one month, before declining to below 10% after that, although remaining high at above 8% through April 2012. Unemployment numbers at the beginning of both recessions were at similar levels, around 6% in early-1980 and around 5% in early 2008.

In regards to inflation, the 1980–1982 recession inflation rate peaked at 14.76% in March 1980 and remained over 10% through October 1981, before dropping in early to mid-1982. By comparison, inflation during the 2008–2009 recession was practically non-existent, with a peak of nearly 5.6% inflation in July 2008 before dropping to .09% by December 2008. Deflation occurred in 2009, specifically between March–October, “troughing” at negative (-) 2.10% in July 2009 before going positive to 2.72% in December 2009. Inflation remains low, standing at 2.65% as of March 2012.

In a related debilitating category, the Prime Lending Rate (PLR) stood at 20% in early-1980 in order to combat high inflation. The PLR fluctuated somewhat but hit 20% again in late-1980, again in early-1981, and yet again in late-1981, remaining at around 15% through mid-1982 before dropping below 10% by the end of 1982. By contrast, during the 2008–2009 recession the PLR has remained flat at around 1% since late in 2008, practically speaking during the entire period.

Although the banking industry and housing sector were hit hard in the 1980–1982 recession, the housing sector was hit harder in the 2008–2009 recession due to the housing bubble bursting in 2006–2007. This is the only category that is clearly worse in the 2008–2009 recession from a U.S. perspective.