Six months after I began writing these articles on "Managing in Difficult Times," we are still in difficult times. As I’m writing this in the summer of 2009, there is much talk about the “green shoots” of a recovery, but very little evidence that a recovery is actually under way. Technically, the current recession started in the 3rd quarter of 2008 when the GDP first showed negative growth, and it has remained negative through the 1st quarter of 2009. That’s one year, but many believe the recession started in the 2nd quarter of 2007 when the GDP first went negative even though there was a slight rebound in the first half of 2008. That puts this recession at two years and counting. The stock market slide also began in late 2007.
Many of the indices of world output are tracking the same decline as in the Great Depression of 1929-1933. Back then it took over three years before there was a real bottom. Many believe we are heading in the same direction. In the last year, world industrial output has fallen about 15%, and world stock markets about 50%. The world stock market decline is, in fact, steeper than the period of June 1929 to June 1930 where the decline was only about 25%. The bottom in industrial output in the 1929 depression was a drop of 40% not reached until June 1932 – three years after the slide began.
Even more surprising is the fact that world trade is falling even faster than in 1929. One year into the Great Depression, world trade had fallen about 20%. From June 2008 until now, world trade has fallen 50%. Historically, the drop in world trade has been seen as one of the more destructive factors compounding the effects of the Great Depression. What does this imply for our current state of affairs?
The monetary response, of course, has been totally different today as it was then. Today, countries, particularly the U.S., have been more willing to run up larger deficits to combat the recession. The question, however, is will that policy response work? Unfortunately, many believe that all the stimulus money has been spent on the wrong things. What impact do you suppose the cap-and-trade bill, if it is passed, will have on the recovery?
I believe indications are certainly there that we are in a depression every bit as big as the Great Depression. Experts are not in agreement on this point. But assuming I am correct, have you positioned your company to weather this current storm for another few years?
Where's the Recovery?
By Jack Marino