20 July 2018

Is Greece in worst position than the one of US's in 1933?

23 June 15 | Tom Keene
Tom Keene


IBI Group

Consultant - GREECE


Consultant - GREECE

Solum Property Solutions

Consultant - GREECE


Public entity - GREECE


Antulio Richetta

Director IBI Group
Tom Keene, Certified Financial Analyst and member of CFA Institute, in its recent article on argues on an intuitive observation regarding the "chances" Greece currently has on seriously facing a depression like the one US had suffered back in the beginning of the 19th century.


Using the second definition of depression, most economists refer to the Great Depression as the period between 1929 and 1941. On the other hand, using the first definition, the depression that started in August 1929 lasted until March 1933. Note that NBER, which publishes the recession (instead of depression) dates for the U.S. economy, has identified two recessions during that period. The first between August 1929 and March 1933 and the second starting in May 1937 and ending in June 1938.(Wikipedia)

Is Greece in a depression?

The above is confusing. It is classic "on the one hand, on the other hand ..." analysis.

For Greece, it is neither confusing nor funny. They are most certainly experiencing some form of "Great Contraction" or "Great Recession."

But is it a "Great Depression" like in the 1930s? Or is Greece in the early stages of a "Long Depression" like the U.S. from 1873 to 1896—longer and shallower than what followed on in 1929?

Let's take a look.

Focus first on the Hellenic economy as shown by the white line, which is inflation-adjusted Greek GDP, going to 2013.

I have estimated the further decline in real GDP to 2014 (the white circle).

The left, yellow circle marks the advent of the euro at the end of 1998. Note that Greek output has not benefited from the common currency and monetary union, at least according to this chart.

Now, ask a simple question: Can we compare the top of the Greek experiment, 2007, with the top of the U.S. pre-Depression economy, or 1929? The left blue circle "pins" U.S. real GDP from 1929 and Greece's real GDP from 2007.

The red circle is the "bottom" in America in 1933; the second blue circle is the New Deal recovery to 1936, and finally, the green circle is what many suggest is the "end" of America's slump in 1941.

The chart is set semi-log, so slope matters and the movements suggest percentage change.

(Disclaimer: This overlay is a close approximation and combines Greek data in euros, set to U.S. dollars with U.S. Bureau of Economic Analysis guesstimates of what actually happened before World War II. It is widely understood that "good data" only began about 1947.)

What to make of all this? Economic depression is highly subjective and includes the depth of contraction with the chronic nature of a given slowdown.

What is certain is the plunge in output qualifies Athens to scream: "depression." Just as one immediate example, the white series tumbles well beneath the red circle that represents America's 1933 nightmare.

Critically, the data are all set in U.S. dollars.

That makes a huge difference to the Greek domestic economy living on weaker euros and the possibility of an even more fragile drachma.

The chart does not show 2015, or 2016, or the future, whatever that may be.


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