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It's VERY different this time

It seems I keep running across people's attempts to compare today with the Depression of the 1930s. But as I was going through and updating my charts, I ran across this one of the yield on 10-year Treasury bonds. Bond yields (the 10-year was the longest Treasury maturity available until the mid-1970s) first hit 2.0% in 1941, well after the worst of the Depression and Deflation of the 1930s, and it took until late 1958 before yields rose to the level they are trading at today. In other words, it took the U.S. economy 25 years following the Depression—the low point of the Depression occurred in 1933—to get interest rates up to where they are today. Today the bond market has only taken a little over 13 months (from the end of Dec. '08, when markets were priced to a Depression) to move yields up from 2% to today's 3.7%.

Clearly, there's no comparison between the past year or so and the Depression of the 1930s. In the old days they made Depressions that lasted a long, long time. Nowadays they're over before they even get a chance to start.

If there's anyone we have to thank for short-circuiting this recent depression, it's the Fed. It's amazing how fast a trillion dollars of new money can put an end to the threat of deflation.

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