The differences between 1929 and Today

[Exsubmariner]

All the chicken-little-OMFG-The-Sky-Is-Falling-We're-Already-In-The-Next-Great-Depression talk has be bothered to the point that I did a little review about the Great Depression.

Namely, I had an eye toward debate about the causes. There are some important differences that I think warrent discussion.

First and foremost - Many on this board believe in the assertion that the Great Depression was caused by a contraction of the money supply. Regardless of the validity of this assertion, one must concede that there is no such contraction occuring today.

The Fed's Policy and Impact - In the early 1930's, the Fed as an entity did not have the experience nor the influence over the capital markets that it does today. It's best practices were not as refined. In short, successful organizations learn over time.

The Information Age - The world was not as connected then as it is today. It was harder to verify information and investors and money managers were not as savvy as today at detecting [censored] rumors.

Dollar as the world reserve currency - In the 1930's the Dollar WAS NOT the world reserve currency. Trillions of Dollars were not held overseas waiting for bargain shopping in America as soon as the stock market went down. Today, this serves as a feedback mechanism that will bring capital back into the capital markets.

Gold backed currencies - In the early 1930's, many world currencies were backed by gold, INCLUDING THE US DOLLAR. This put an artificial choke hold on the availability of cash that does not exist today. Today, the major players in the currency market are fiat or pegged in some way to the dollar. Regardless of the arguements in favor of gold backing, the world currency market is not restricted by gold today.

Trade - The world was not as interdependant in 1930 as it is today. Borders were far more important to business than they are today. Protectionism was a far more ready and feasible fall-back position in face of an economic crisis then. Today, we have no choice. The economy depends on trade. We must trade. Period. Not the case in 1930.

In closing - The world is a different place than in 1930. I submit that the fears concerning the collapse of the international monetary system are based on ideas concerning the causes of the Great Depression that have little or no significance to the modern reality. They are therefore irrational.

Discuss.