1930s Depression vs 2010s Depression

In The Booming Depression, Jeffrey Snider shows that economic growth in this depression is weaker than in the 1930s depression.
Today, it is the reverse. Not the “us” versus “them” part, that’s the same. Only now the whole global economy is swept up in a deflationary pit from which it again seems unable to transcend. It is not deflation in the 1930’s sense, rather it is a slow squeeze, an unceasing downward (monetary) drag that intermittently ensnares the global economy keeping it from taking off at just those moments it looks best able to.

As a result, the last decade plus actually underperformed the Great Depression. Think about that.
The Dow Jones Industrial Average closed at 381 at its 1929 peak. Eleven years later, it was trading at 150, or 60 percent below the peak. That also includes a dollar devaluation from $20 per ounce of gold to $25 dollars. In other words, the 1929 Dow peak bought you 19 ounces of gold, but 11 years later it bought only 4.3 ounces, or 77 percent below the peak.
The U.S. stock market peaked at 14,165 in 2007. The dollar went off gold in the 1970s, but for reference, it was about $750. The Dow bought about 18.9 ounces of gold. Eleven years later, the Dow traded at 29,551. Gold was around $1650 per ounce or 17.9 ounces per Dow Jones Industrial Average. In nominal terms, the Dow soared to more than double its 2007 peak even amidst an economy performing as badly as the 1930s economy. Of course, the past decade-plus saw slow, grinding growth. There was no collapse of the banking sector thanks to central bank and government intervention. Stocks tumbled more than 50 percent from peak to trough, far better than the nearly 90 percent drop post-1929. Measured from bottom to eleven years later, the Dow gained nearly 250 percent in the Great Depression. It advanced more than 350 percent off the 2008 low.

The question I'm asking right here is: did the inflation end? Are central bankers out of bullets? Will the 1929 scenario begin in earnest this time, but with stocks starting from a far more overvalued position? Or is the depression closer to its end, and the devaluation of fiat currencies about to begin, crushing the Dow/Gold ratio back below 10? If the latter, I still believe emerging markets will collapse first- as is happening right now. My thesis remains that fiat burns from the periphery to the core, with USD likely the last currency to implode. Neither Japan nor Europe is equipped to take on the role of global consumer, neither can handle the destruction of the manufacturing sector that would come from ripping higher versus the greenback. Perhaps the USD, EUR and JPY will all collapse together, but if not, I maintain the USD falls last. Also, I believe some rising percentage of capital fleeing emerging market currencies will flow into gold. I anticipate the U.S. dollar will "rise" versus many foreign currencies, even if they are all losing value against gold. A superior trade is long gold and short any number of non-U.S. dollar currencies.

My conclusion: the 1930s depression was far harsher at the start, but it enjoyed a far more equitable inflationary response. The economy boomed in FDR's first term. Inflation in the current depression has flowed mostly into financial assets. It has pushed up costs for consumers, but not wages. A "settlement" between financial assets, wages and gold is coming and these measures, among others, will be more balanced in the future.

Bonus depression charts:


  1. What would signal a break between physical gold and paper gold (I'm assuming that they aren't the same thing)-would it be something basic like delayed delivery times from dealers? What are some things we could look for, whether by charts or whatever? I love this site, keep up the good work.

    1. I don't think physical will ever break the paper market, but physical could force a repricing of the paper market. It will probably require a central bank making a major move though. There's already dwindling physical metal supply, limited buying options at some dealers.