Great Depressions vs Great Recession
Financial crises are a constant theme through generations. People can lose all their savings and somehow the richest 1% of the country will stay above the cumulative distributive mean of average earnings. It seems that everyday working middle class people are effected through these catastrophes losing all of their savings and future generations are now forever. Through evaluating the similarities and differences between the Great Depression of the 1930’s and the Great Recession of 2007/2008, we can learn how future financial crises can be avoided.
All financial crises can be related back to the idea that people think they can spend more than they have. The start of the Great Depression can be attributed to many variables such as the wealth gap where the wealthiest people made the most profits. Many people viewed the 1920’s as a very prosperous time but in reality the income was unevenly distributed.
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Many americans spent more than they earned which forced them into heavy debt. In addition there were debts and reparations to be payed by Europe caused by World War 1. The start of the Depression is often remembered as the stock market crash. It’s regularly told as “Black Tuesday” when 16 million shares of stock were quickly sold by panicking investors who had lost faith in the American economy. Almost 9,000 banks suspended operation and the money supply dropped significantly. At the Depression’s peak 13 to 15 million American people were unemployed. The brewing pot which instigated the Recession in 2007/2008 started in the 1980’s when Wall Street could create a “Mortgage Bond”. It was bought and sold by the big banks such as Goldman Sachs, JPMorgan, and Merrill Lynch. Wall Street structured mortgage bonds into layers where the lowest layer was representing the first “N” mortgages to be paid off early, and the highest layer being the last “N” mortgages. Wall Street firms began to create mortgage bonds from “subprime” mortgages, for example mortgages of much higher risk, but paying much higher interest rates, made borrowers interested that had lower levels of credit. Americans would take these loans in large quantities but without realizing the real estate bubble they had built around them. By 2008 the big banks had made enormous profits, but had multiple collateralized debt obligations and mortgage bonds waiting to be sold. The biggest pension funds around the world had huge investments in these CDOs and bonds. Then everything collapsed… Real estate prices began to drop. Americans began defaulting their mortgages in mass quantities. Lehman brother went under which caused uproar across the globe. Many people lost everything including their jobs, savings, retirement funds. Greed is the excessive or rapacious desire, especially for wealth or possessions.
The root cause of Great Depression is the federal reserve mismanagement of the money supply. As soon as the crisis hit people panicked and immediately headed over to the banks to withdraw their money. Then more and more people withdrew money and many banks closed. To put yourself in their shoes imagine that you had all your savings a bank and you heard that several hundred banks had failed. Personally I would go to the nearest bank and withdraw all of my money so I wouldn’t risk losing it all when everything eventually closes. When countless people show up and begin demanding for money that the bank currently doesn't have it’s forced to close its operations. in the 1930’s there was no Federal Deposit Insurance Corporation to protect the people's money. All in all the greed of the Feds and individual greed of certain individuals who needed money immediately caused for banks to fail and for people around the country to lose everything they
have. Greed coincides with the Recession as well as it did in the Great Depression. The drive for profit can make a person go deranged. As the great Mr. Champney once said “profit is a financial gain ”. Wall Street created produced that were based on riskier mortgages and sold them to people as secure investments. It was like offering fool's gold as real gold to people and making them believe they would be able to double their investment. The biggest cause of the greed was when the lenders didn’t care if the borrower was able to pay them back the money that was owed. A famous anecdote was told in Michael Lewis’s “The Big Short”. There was a story about lenders who would fly down to low income county’s and target people for who they would try to sell mortgages to. Using deceitful tactics to convince them to buy these free of
The stock market crash of 1929 was one of the main causes of the Great Depression. Before the stock market crash, many people bought on margin, which caused the stock market to become very unbalanced, which led to the crash. Many people had invested heavily in the stock market during the 1920’s. All of these people who invested in the stock market lost all the money they had, since they relied on the stock market so much. The stock market crash also played a more physiological role in causing the Great Depression.
The Great Depression was most likely the most severe and enduring economic crashes in the 20th Century (Source 1). That included a quick drop in the supply and demand of goods and services along with a big rise in unemployment (Source 1). Many things were the cause of the Great Depression, one is the U.S. stock market crash (Source 1). And two is the widespread failure in the American bank system
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
The stock market crash of 1929 was the primary event that led to the collapse of stability in the nation and ultimately paved the road to the Great Depression. The crash was a wide range of causes that varied throughout the prosperous times of the 1920’s. There were consumers buying on margin, too much faith in businesses and government, and most felt there were large expansions in the stock market. Because of all these positive views that the people of the American society possessed, people hardly looked at the crises in front of them.... ...
There were many causes for the Great Depression. The first and one of the largest was the stock market crash. Before 1929 the stock market was flourishing and everyone wanted to buy stocks. People were so confident in the stock market that they were buying “on margin”, which meant that brokers would lend them 10% of the money they invested (D1). The problems began when stocks were being over speculated. When people began to realize this, they began selling there shares. On October 29, 1929, 16 million shares were sold (D9). This day became known as “Black Thursday”, the day the stock market crashed (D12). The second reason was the overproduction of goods. Factories had already produced too many goods and now there was no demand for them. The government began to raise tariffs to protect Canadian industries but things only led downhill from there.
Some say that the great depression was caused partially by social democracy and planned economies. And although this could be true, it originally started from debts from World War I, and of course the stock market crashing in 1929.
The Web. 16 Mar. 2014. The 'Standard' of the 'Standard'. http://www.harp.gov/About>. Agricultural Adjustment Administration (AAA). "
Since being founded, America became a capitalist society. Being a capitalist society obtains luxurious benefits and rather harsh consequences if gone bad. In a capitalist society people must buy products and spend money to keep the economy balanced, but once those people stop spending money, the economy goes off balance and the nation enters a recession. Once a recession drastically takes a downturn, the nation enters what is known as a depression. In 2008 America entered a recession and its consequences were severe enough for some people, such as President Barack Obama, to compare the recent crisis to the world’s darkest economic depression in history, the Great Depression. Although the Great Depression and the Great Recession of 2008 hold similarities and differences between the stock market and government spending, political issues, lifestyle changes, and wealth distribution, the Great Depression proved far more detrimental consequences than the Recession.
Throughout history there have only been two major economic downturns. The Great Depression and the Recession of 2008 both occurred due to poor financial policies and excessive spending. Both events left people with a sense of hopelessness and vulnerability. A comparison of the Great Depression Era and The Recession of 2008 reveals similarities in causes and effects economically, socially, and politically.
The occurrence of the Great Depression was an inevitable economic disaster that was caused by a variety of reasons and events that happened in the U.S. and across the world. The lack of diversification was one of the main causes of the Great Depression as the dependence on only certain industries like the automobile industry began years before; and because of the prolonged success of such industries, their demise could not have been predicted. World War I was an event that had a major impact on the Great Depression because of the complexity of the international debt owed to the U.S, and the decline of international trade. In addition, the failure of the bank system and the reckless investments that banks, businesses and the American public made contributed to the manifestation of the Great Depression.
The Great Depression was in no way the only depression the country has ever seen, but it was one of the worst economic downfalls in the United States. As for North America and the United States, the Great Depression was the worst it had ever seen. In addition to North America, the Depression greatly affected Europe and other various countries throughout the world significantly during the 1920’s and 1930’s. The Great Depression was caused by the collapse of the Stock Market, which happened in October of 1929. The crash exhausted about forty percent of the paper values of common stocks. It was the worst depression due to the fact that at the time of the Great Depression the government involvement in the economy was higher than it had ever been. A unique government agency had been set up exclusively to prevent depressions and their related troubles for instance bank panics. All of ...
Great Depression was one of the most severe economic situation the world had ever seen. It all started during late 1929 and lasted till 1939. Although, the origin of depression was United Sattes but with US Economy being highly correlated with global economy, the ill efffects were seen in the whole world with high unemployment, low production and deflation. Overall it was the most severe depression ever faced by western industrialized world. Stock Market Crashes, Bank Failures and a lot more, left the governments ineffective and this lead the global economy to what we call today- ‘’Great Depression’’.(Rockoff). As for the cause and what lead to Great Depression, the issue is still in debate among eminent economists, but the crux provides evidence that the worst ever depression ever expereinced by Global Economy stemed from multiple causes which are as follows:
October 29th, 1929 marked the beginning of the Great Depression, a depression that forever changed the United States of America. The Stock Market collapse was unavoidable considering the lavish life style of the 1920’s. Some of the ominous signs leading up to the crash was that there was a high unemployment rate, automobile sales were down, and many farms were failing. Consumerism played a key role in the Stock Market Crash of 1929 because Americans speculated on the stocks hoping they would grow in their favor. They would invest in these stocks at a low rate which gave them a false sense of wealth causing them to invest in even more stocks at the same low rate. When they purchased these stocks at this low rate they never made enough money to pay it all back, therefore contributing to the crash of 1929. Also contributing to the crash was the over production of consumer goods. When companies began to mass produce goods they did not not need as many workers so they fired them. Even though there was an abundance of goods mass produced and at a cheap price because of that, so many people now had no jobs so the goods were not being purchased. Even though, from 1920 to 1929, consumerism and overproduction partially caused the Great Depression, the unequal distribution of wealth and income was the most significant catalyst.
European economies were in a financial tailspin that resulted in decreased output in world markets. The demand for consumer and industrial goods drove up prices, and the world economic leaders provided little leadership during the depression. The agricultural market also had issues with lower wheat prices and incomes for farmers. Democratic governments took over farms in some counties and subsequently blamed for problems in the farming industry.
The Great Depression was the deepest and longest-lasting economic downfall in the history of the United States. No event has yet to rival The Great Depression to the present day, although we have had recessions in the past, and some economic panics, fears. Thankfully, the United States of America has had its share of experiences from the foundation of this country and throughout its growth, many economic crises have occurred. In the United States, the Great Depression began soon after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors ("The Great Depression."). In turn, from this single tragic event, numerous amounts of chain reactions occurred.