Bad news: it’s like 1931. Good news: it's not 1933 yet

Barack Obama inherits an economy much like the mid-Depression year of 1931. The US is losing 500,000 jobs a month. Citigroup and Bank of America have more or less disintegrated. JP Morgan's health is failing fast. General Motors and Chrysler survive only on life-support from the US taxpayer.

But it is not yet like 1933. That second leg down was the result of "liquidation" policies by a Dickensian leadership blind to the dangers of debt deflation.

Three days after Franklin Roosevelt moved into the White House, FDR had closed the US banking system – invoking the Trading with Enemies Act – and ordered the confiscation of private gold. The New York Stock Exchange and the Chicago Board of Trade had closed. Thirty-two states had shut their banks. Texas had restricted withdrawals to $10 a day. Few states could borrow on the bond markets. Illinois and much of the South had stopped paying teachers. Schools closed for months.

An army of 25,000 famished war veterans squatting in view of Congress had been charged by troopers of the 3rd US cavalry with naked sabres – led by a Major George Patton. Armed farmers threatening revolution had laid siege to a string of Prairie cities. We forget how close America came to open revolt. Eleanor Roosevelt feared the country was beyond saving.

The wash of money should ensure that the next 18 months will not mimic the cascade of disasters from late 1931 to early 1933. It buys time. But it does not solve the deeper problem.

[The Telegraph]