What can be done to avert a New Great Depression?

ECONOMICS

Richard Duncan outlines several possible paths to economic depression and considers how disaster can be avoided.

The last great depression In 1930, the US money supply comprised currency held by the public (9%) and deposits held at commercial banks (91%). Banks fund their loans with their customers’ deposits. When the credit that fuelled the roaring twenties could not be repaid, the banks began to fail. Between 1930 and 1933, 9,000 US banks failed. The corresponding destruction of deposits caused the country’s money supply to contract by a third, from $46bn in 1928 to $31bn in 1933. As the money supply shrank, the happy economic dynamic that expanding credit had made possible went into reve...