Comparisons with the Great Depression have become commonplace. Occasionally, for variety, we're told that the Panic of 1873 is relevant, or that the stagflation of the 1970s may have lessons to impart today.
Then there's Japan's circa-1990 crash and extensive experimentation with deficit spending and public works "stimulus," which ultimately left the Nikkei 225 average at less than one-quarter of its all-time low: 8,700 as of early Tuesday, down from an all-time high approaching 40,000 a generation ago.
The chart above may give a better way to evaluate today's situation. It shows that during the 1929-to-1933 phase of the Great Depression, the decline in real GDP -- the nation's overall economic activity -- was a remarkable 27 percent. The government's efforts to stimulate a recovery, adding up actions by the Federal Reserve and the U.S. Congress, totaled 8.3 percent of GDP.
No other U.S. economic decline since has come close to exacting that amount of pain. Not one even leapt into a double-digit GDP decline. During the stagflation era, the 16-month recession starting in November 1973 led only to a 3.1 percent decline in real GDP.
Compared to the Great Depression, that's just a rounding error.
Today, the recession (or, perhaps, Lesser Depression) that started in December 2007 has caused a decline in real GDP of only 1.8 percent. But the Obama and Bush administrations have spent an astounding 29.9 percent of GDP, at the very least, making this an extraordinarily expensive stimulus.
Those figures came from the April 3 issue of Grant's Interest Rate Observer, which calculated them based on Federal Reserve and Congressional Budget Office data and noted that the figures for today's downturn are estimated and not final. What's more, that estimate errs on the low side. Grant's is a non-partisan publication read by professional investors that bills itself as a financial information source that least resembles CNBC.
No wonder worries about inflation are back: the Feds can get "stimulus" money only through higher taxes, higher borrowing, or higher inflation. Governments historically have preferred to print money to pay back their debt in full -- in devalued currency.
"This heretofore unimagined 28 percent to 30 percent of GDP is just for starters," Grant's says. "One must also consider the new federal guarantees, including: $1.8 trillion to backstop the commercial paper market, $540 billion for the Money Market Investor Funding Facility, $3 trillion for the soon-to-expire blanket guarantee of money-market mutual funds, $700 billion for expansion of deposit guarantee coverage to $250,000 per depositor, $1 trillion for ensuring the debt of sundry financial institutions and a further $450 billion for additional guarantees."
Adding in Fed guarantees for Citigroup and Bank of America and the $1 trillion Public-Private Investment Program and, "all told, such guarantees and backstops sum to $8.9 trillion at face value, representing an additional 63 percent of GDP."
That means the federal response to today's modest slide in GDP is 12 times greater than the the response to the far greater downturn during the Great Depression. How's that for putting things in perspective?