Depression, No—but That Lesson Is Vital

As credit outlook deteriorates, most important word is 'trust'

By Kevin Spak, Newser Staff

Posted Oct 1, 2008 4:20 PM CDT

(Newser) – Constant references to the Great Depression aren’t alarmist, but the analogy isn't perfect, either, writes David Leonhardt in the New York Times. "The basic mechanics of how the economy might fall into a severe recession look quite similar to those that caused the Depression," he explains. "In both cases, a credit crisis is at the center of the story."

What really destroyed the 1930s economy wasn’t a stock crash but the banking crisis that ensued. Each failure reduced banks’ willingness to lend to each other and took crucial information out of the system. Today’s much larger banks are at the same point: failing, and afraid to lend. Modern economies need easy credit to survive, writes Leonhardt, which means we must help Wall Street. "That is where our credit markets are, and we need them to start working again."

[Images (4)]

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The Great Depression references may sound alarmist, but they're not misplaced. (Magnum Photos)

Jeremy Conroy, 13, sells apples in front of the New York Stock Exchange Tuesday, Sept. 30, 2008 in New York. Conroy is reenacting a scene of boys selling apples during the Great Depression. He is donating... (AP Photo/Mark Lennihan)

Jeremy Conroy, 13, sells apples in front of the New York Stock Exchange reenacting a scene from the Great Depression, Sept. 30, 2008. All the money will be donated to the Obama campaign. (AP Photo/Mark Lennihan)

Treasury Secretary Henry Paulson takes a reporter's question after announcing major regulatory overhauls in this March 31, 2008 file photo. (AP Photo/J. Scott Applewhite)

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Depression, No—but That Lesson Is Vital