Year in Review: Lessons from History–No Way Back to Cheap, Easy Credit


By James Boughton

The world economy is beginning to awaken from a nightmare. What hit us, and what was the tossing and turning all about? The popular simile is a comparison with the Great Depression, as in “This is the worst downturn since the 1930s.”

In fact, unless we get hit with another hammer before we fully wake up, the Great Recession is very unlike what the world went through some seven decades earlier.

The Great Depression, like the recent collapse, began with a banking crisis, but of a different kind. Instead of emanating from huge financial institutions in major money markets, the earlier one spread outward from small midwestern banks in the United States and led eventually to a near total loss of confidence.

Depositors pulled their money out into cash or gold, and the U.S. banking system shut down. Investors in other countries also moved heavily into “safe” assets.

Cars in line at U.S. gas station in 1979: the world in which consumption could flourish amid cheap and readily available energy was gone forever (photo: R. Krubner/ClassicStock/Corbis)

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