Worse Than The Great Depression?

by: Harold Fredrick

People have been throwing around the phrase "worst economy since the Great Depression" for four years now, and I've agreed with them.

Today, however, I'm starting to think that this economy is actually worse than it was during the Great Depression. In terms of quarterly GDP growth, it is.

At this point of the Depression, quarterly GDP growth had shot up to over 10% and remained close to that level for more than two years. It appears that GDP is about to go negative after only having shot up to 4% and hovering around an anemic 2% for three years. In other words, it's becoming clear that this "recovery" is weaker than the recovery seen during the Great Depression.
The Economy Is Worse Than It Was During The Great Depression - Great Depression GDPClick to enlarge

The Economy Is Worse Than It Was During The Great Depression - Great Recession GDPClick to enlarge

Not only is the economy recovering at a lesser pace than it did during the Great Depression, it's doing so with credit having been expanded to historic lengths. Total debt-to-GDP is currently 60 points higher than it was at its peak during the Great Depression. That should scare you. With the Fed pumping an Amazon River of liquidity, Washington spending even more than it did during the New Deal, and consumers buying things they can't afford, the economy is still contracting!

The Economy Is Worse Than It Was During The Great Depression - debt-to-GDPClick to enlarge

From the preceding chart, you might come to the conclusion that we're at least moving in the right direction in terms of deleveraging.

But remember that i) federal debt has passed the point where it becomes a drag on an economy and has rocketed past 100% GDP. ii) Much of the consumer deleveraging has been from write offs and debt transferred to the federal government. iii) consumers are now charging essentials to their credit cards. And iv) the student loan bubble looks like this:

Economy Worse Than During The Great Depression - student debtClick to enlarge

Notice that the preceding chart only shows student loan debt owned by the federal government. Total student loan debt has surpassed $1 trillion. Student debt is the next bubble to burst.

I maintain that the economy is worse than it was during the Great Depression, and the only reason why it doesn't feel that way is because: ii) advances in technology and economies of scale have made creature comforts affordable for everyone, ii) food stamps and other government programs have replaced bread lines and work camps, and iii) this country is living well beyond its means.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.