[kvcc01]

I listened to Bernanke talk about this once. The academic view seems that things weren't that awful until 1931, when a large Austrian bank failed (Google Creditanstalt), which triggered a wave of global bank failures [1]. The resulting lack of credit was the cause that made the depression Great. When Creditanstalt went down, Dow was off ~50% from its 1929 high, which still happens every now and then. We went through a similar decline during the 2007-08 financial crisis and came out all right thanks to aggressive and globally organized central bank activity. Unfortunately such an organized response didn't happen in the 1930s so the economies kept contracting, and the Dow eventually ended up losing 90%. Check out the charts in that period, it is fascinating.

[1] https://fraser.stlouisfed.org/docs/meltzer/bermac95.pdf

[Gibbon1]

I've heard other somewhat contrary things, one is the birthrate started falling well before the '29 crash indicating that working class and especially farming communities were actually not doing well economically. You can look up graphs if you want, but the birthrate drops relentlessly from 3.2 in 1920, to 2.2 by 1930. As the economy improves post 1935 the rate picks up again.

My take on recessions and debt is to consider that when an entity (family, business, etc) pays off debt they are foregoing some consumption. Key thing. Now in normal times foregoing of consumption frees up economic output that is invested in the real economy. As I pay off my mortgage, the bank reinvests that money in building more houses. A virtuous cycle, depending how much you like concrete, sprawl and freeways.

In a debt driven recession there is a problem, the economy isn't limited by available production. There is a lack of demand. Because as people frantically pay of debt they are foregoing consumption that doesn't free up more physical or labor resources for investment. It just creates a lack of demand. The money instead goes to correct balance sheets which is something that exists on paper (or in modern times le computer machine).

That's the situation many parts of the developed world are in today. The solution is for the government to step in an manually rebalance consumer and commercial balance sheets. A political problem exists when the people in charge can't let go of the 'paper wealth'. And that's the current issue.