The 'second Great Depression' saviour myth | Dean Baker

We said that officials at the Fed and the Obama saved us from another fall of 1930 style. Nonsense

As reelection campaign of President Obama is getting warmer, there are several new accounts in your history to find their way into print. A point which is - wrongly - credit is given to save the country from a second Great Depression. Political elites believe in the myth hello second Great Depression with the same fervor that young children believe in Santa Claus. And is as much rooted in reality.

While the Obama administration, in collaboration with Ben Bernanke at the Fed has the merit of avoiding a financial crisis, a second great depression was not in the cards. The first Great Depression was caused not only by bad policies at the beginning of the financial crisis, but also an inadequate policy response.

expenses associated with World War II ultimately brought us out of depression. There is nothing magical to spend on the war. The expenses of the same magnitude in roads, schools, hospitals or any other thing as well raised the economy from depression at any time after the initial drop in 1929-30

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The problem was the lack of political will to invest in these areas, while there was a lot of political support for the struggle against war after the attack on Pearl Harbor. The lesson of this period is that the U.S. could have come from the Great Depression

any time

was willing to spend money to do so. This means that the financial crisis could not have condemned us a decade of double-digit unemployment, since it would take a decade of failure of current policies, after the original fall.

All this should be obvious to anyone familiar with the history of the Great Depression. But we must go back 70 years for classes in the recovery of financial crises, just look south. In December 2001, Argentina broke the link between its currency and the dollar, and pay your debt. The result was a financial collapse that was certainly at least as bad as the worst scenarios that the U.S. could cope with the terrible days that followed the collapse of Lehman Brothers.

• Following this default, the Argentine economy went into free fall of about three months. Banks were insolvent, families and businesses would not have access to their savings, and normal processing companies has become almost impossible.
• However, in the second quarter of 2002, the government had largely stuck things together, to the extent that the economy has stabilized. He began to grow rapidly in the third quarter of 2002, and continued to grow rapidly until the global recession has slowed the economy in 2008. In mid 2003, had regained all the ground lost in the initial crisis following the failure.
Based on the experience of Argentina, we can say that in the case of complete fusion, we could see three months of free fall (which is actually worse than experienced in September 2008 to April 2009), followed by three months of stability and a return to growth after six months away. Of course, it is possible that our political team of Ben Bernanke, Larry Summers and Timothy Geithner, maybe not as qualified as the team in Argentina, but even if we double the time, we have six months of free fall and three years to return to pre-crisis levels of production. This is bad news for you, but a bit short of anything that might deserve the title of "Great Depression".

The attack on the second great depression myth is not simply an exercise in semantics. The Obama administration and the political establishment, more generally, that the public is happy that we managed to avoid a second Great Depression. People should realize that this statement is analogous to boast that we have kept our children safe from being attacked by tigers. It is true that almost no children in the United States are increasingly attacked by tigers, but not generally disclose much praise of this policy -. Since there is no reason to expect our children to be attacked by tigers

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