Morgan Stanley's Chief Global Fixed Income Economist Joachim Fels writes
As the global recession deepens and broadens, comparisons between the current downturn and the Great Depression of the 1930s are becoming ever more popular. This was certainly the case at Morgan Stanley’s 2009 Global Macro Conference in New York last week, where we hosted a small group of US real-money and hedge-fund clients. The consensus view was that the US economy would, at best, go through something similar to Japan’s lost decade, and some thought things might turn out to be as bad as, or even worse than, the Great Depression
We don’t think so. As we have explained before and did again at the conference, we disagree. Yes, things are bad, but by far not as bad as in the Great Depression, because policymakers have learned their lesson and have started to throw massive monetary and fiscal stimulus at the economy. Our base case remains that policy action will find traction in the course of this year, leading to a (probably anaemic) recovery sometime during 2H09.
....The key lesson from the Great Depression is that policy, and especially monetary policy, matters a lot. Central bankers around the world have learned that lesson and have not only cut rates early and aggressively, but have also engaged in quantitative easing and are, together with governments, stabilising the banking system. Thus, money supply is expanding rather than contracting. This, together with the coming fiscal expansion, is the reason why we think that the widespread Depression angst is just that – angst.
