http://www.reuters.com/article/politicsNews/idUSTRE51J5JM20090220?feedType=RSS&feedName=politicsNews Crisis may be worse than Depression: Volcker By Pedro da Costa and Kristina Cooke NEW YORK (Reuters) - The global economy may be deteriorating even faster than it did during the Great Depression, Paul Volcker, a top adviser to President Barack Obama, said on Friday. Volcker noted that industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain. "I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker told a luncheon of economists and investors at Columbia University. Given the extent of the damage, financial regulations must be improved and enhanced to prevent future debacles, although policy-makers must be cautious not disrupt things further while the turmoil is ongoing. Volcker, a former chairman of the Federal Reserve famed for breaking the back of inflation in the early 1980s, mocked the argument that "financial innovation," a code word for risky securities, brought any great benefits to society. For most people, he said, the advent of the ATM machine was more crucial than any asset-backed bond. "There is little correlation between sophistication of a banking system and productivity growth," he said. He stressed the importance of preventing financial institutions large enough to pose a threat to the entire system from engaging in risky behavior such as running hedge funds or trading for its own accounts. The current crisis had its beginning in global imbalances like a lack of savings in the United States, but policy-makers around the world were too reticent to take action until it was too late, Volcker said. Now that the crisis had erupted, it was important to take decisive actions, including a more effective regulatory structure and some movement toward uniform accounting systems, Volcker said. He said all financial institutions that are deemed too large to fail should be subject to increased scrutiny, echoing the findings of the Group of 30, a panel of policy-makers and influential economists, which he leads. (Reporting by Pedro Nicolaci da Costa and Kristina Cooke; Editing by Tom Hals)
He's not saying the economy was worse. He's commenting more on how fast the cold is spreading which I speculate to be because of globalization.
Yes...and it's faster because information is so easily, readily and instantaneously obtained. We didn't have just-in-time production in 1929. Nor did we have CNBC. So we continued to move along as if nothing were happening even as the sky was falling. It takes a lot longer to pull out of a craptacular economy in that scenario, because you've compounded the problem for a longer period of time. In their case it was building up huge inventories that no one was buying...because they didn't know no one was going to be there to buy. That doesn't happen today....so presumably this rebound should look more like a "V" than a "U" on a curve. It should sharpen up the "U" at least. That we had a steep decline is indicative to me of a bad recession and the readiness of information at decision-makers fingertips immediately. Better and quicker information leads to swifter decisions...a lot of those decisions are painful. I also believe now we're getting a lot of commentary about how bad things are so that we can argue for solutions that otherwise don't have a chance. In this case, it's deeper regulation of banks (which I'm all for, by the way). So Volcker can say (even flippantly, perhaps), "yeah, this COULD be worse than the Great Depression..." and then any suggestion he makes is revered, because we damn sure don't want to repeat the Great Depression. I think we're all prone to do that...that's pretty human. Finally, we read these articles and convince ourselves it IS worse. Volcker is saying, "it MAY BE worse." The psychology of all this on a culture through the press is as fascinating to me as the economic results that CNBC pumps out.
Volcker is right. The speed of this recession is worse on a global scale. Locally, we are still better off.
