Lessons from the Great Depression
Looking at the current economic climate it feels eerily similar to the 1937-38 recession that occurred during the Great Depression. It is helpful to look at history as a guide since we are facing many similar issues today even though things seem to be stable for the moment.
The question revolves around who will suffer the deepest financial pain? So far the brunt has been suffered by working and middle class Americans.
Much of the recent economic stabilization has come from massive government spending. Yet when you inject money like this into an economy you don’t always get the best bang for your buck and that is exactly what we have. In fact, if we actually look at the M1 multiplier you are seeing how ineffective more injections of liquidity have been for the economy:
Here’s an interesting fact that you may not have seen yet. The M1 money multiplier just slipped below 1. So each $1 increase in reserves (monetary base) results in the money supply increasing by $0.95 (OK, so banks have substantially increased their holding of excess reserves while the M1 money supply hasn’t changed by much).”
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