The Great Depression

"Indeed, it could be argued that the ultimate emotional and intellectual consequences of the Great Depression were not finally erased from the mind of humanity until the end of 1980s.."

- Murray N. Rothbard, American's Great Depression

So the Great Depression (which in writing must be capitalized, like "the Internet") has been forgotten until lately, when it's mentioned more frequently in comparison to today's financial/economic tumult.

Personally I consider it a bad analogy - the Great Depression is the mother of all recessions, only some in the 19th century appeared worse. What keeps surprising me is we are getting closer and closer to the early 30's.

This is a slideshow of the brutality during the Great Depression in the United State - though it was a global party.

• The DJ Index snowballed 88% from peak to trough
• GDP halved
• Though Real GDP dropped about 30%.. Due to deflation 
• Industry production halved
• Unemployment shot up to 13 million, or 1/4 of the workforce
• World trade shrank by 2/3
• And, oh, over 10,000 banks failed.

Why did it happen?

The short answer is: it's a myth - after all those misery, nobody knows for sure - though it had something to do with the Gold Standard.

Under the Gold Standard, gold is the (international) money. Paper (or fiat) notes can be exchanged into gold at your wish. And the global trade was paid in gold bullions.

When the market tanked, the hot money ran overseas so that the gold reserve shrank. Consequently, under the fractional banking system, the money supply and hence the aggregate demand dwarfed.

Furthermore, lack of confidence triggered bank runs and bank had to shore up reserve, and it further decreased money supply. It's a vicious circle. This explains the deflation, which jacked up real interest rate, another hard-to-resolve factor that stymied the economy.

Meanwhile, the supply side failed to adapt, perhaps due to the sticky wage (wage level not adjusted with the damped demand).

So it went that the supply didn't meet the demand, and things went wrong, all over the world.

What about now?

I'll bet on "Helicopter Ben" to continue casting the spells to save us, because he's a "Great Depression puff," self-claimed. And he's got the mustache to prove it. It's a telling indicator: see here and here.