Actually, the Fed raised interest rates in the late 1920s, right before the Crash. Then, they waited a couple of years into the Depression before lowering rates. Yes, eventually they lowered rates, but way too late. However, you are right, the interest rates were not the main cause. Interest rate mismanagement, and allowing a massive credit bubble, was the initial cause of the Crash. But it would have all been over by 1932, if not for a further, bigger mistake. In the early 1930s, the government tried to protect U.S. industries by raising tariffs. Other countries retaliated in kind, world trade collapsed, and didn't recover until after the war. Protectionism, not interest rates, was why the Depression lasted so long.
Today we have low interest rates, and a strong commitment to free trade among both political parties. In addition, we do not have the structural problems Japan has, where "saving face" means that strong companies and banks are obligated to support the weak, so bad debts never get cleared out of the system. What we did with our S&L mess, the Japanese have avoided doing for a decade for their massive bank and corporate bad debt.
So, the underlying conditions of a decade-long economic slump are not present, and there is zero possibility of another Great Depression. Worst-case, we get a 6-18 month recession, over by late next year. Best-case, we get a couple of quarters of near-zero growth this year, over by 4Q2001. That's the range of possible futures. |
