We Have Seen This Movie Before

Throughout this financial crisis there have been endless comparisons between today's environment and the 1930s. We feel a more apt comparison is the deep 1973-75 recession, a period that also dealt with an oil price shock, a housing collapse and a banking crisis. Even then these problems were global, with housing slumping not only in America but in Europe and parts of the developing world.

The early 1970s economic and geopolitical environment was remarkably similar to what we have seen recently. A weakening dollar along with a nearly 50 percent spike in oil prices led to the downturn and an abrupt end to the unprecedented housing boom, sending the financial sector reeling. Unemployment sky-rocketed and policymakers leaned heavily on monetary policy to fight the recession and promote recovery. When the recovery did arrive, it was quite treacherous, with both unemployment and inflation remaining uncomfortably high. Our most recent forecast shows a deeper and longer recession, similar to 1973-75, than we experienced in 1990 and 2001. Real final sales are expected to remain negative throughout 2009. Inventory swings and declines in imports might produce a positive GDP figure before then, but we now believe the recession will last through the end of the year while job losses and rising unemployment will carry over into next year.