Reading the Tea Leaves?

In the spring it was green shoots -- how springlike. But now that summer is here, it seems that those shoots are withering a bit. Markets are trending downward again and other indicators such as employment continue to decline.

On his blog today, Paul Krugman noted that looking at global indicators, the decline since last April tracks the rate of decline in late 1229 and early 1930 at the outset of the great depression. He offers this chart:



He also draws on 1929/30 material from the Wall Street Journal to show that the same optimistic arguments were being made then about impending recovery, offering this example

What’s striking is the optimism: story after story says, in effect, that the worst is over and recovery is just around the corner:

Col. Ayres, VP Cleveland Trust, predicts an abrupt recovery in stock and commodity prices by Labor Day due to current consumption exceeding production. Distinguishes between two types of depression, “V”-shaped and “U”-shaped.

Obviously, we are not repeating the mistakes of the 1930s (yet). But what we don't know is whether the measures taken will work. Much remains to be seen, and while hope is always desirable, optimism is still probably misplaced.