How is the Current Recession Acting like/unlike the Great Depression Nowadays, the economy of the world plunges into an awkward situation. The entire world meets a global economic crisis or recession, especially in the United States. After World War , this recession is the biggest recession for the America. Most of people express worried about this recession; absolutely they recall the memory about the Great Depression which was the most enormous economic crisis in the American history.
They are anxious because it seems like the United States is going through another Great Depression or will go through another Great Depression. From the history, everyone knows how serious the result came out from the Great Depression; it baffled human beings’ development. No one wants to see another Great Depression happen again. However, there are sufficient reasons to support public people to worry about the Great Depression will happen again, because present recession and the Great Depression, both of them have some similar characteristics.
Meanwhile, both of them have much unlike points also can prove the Great Depression will not happen again. In this paper, I will compare and contrast the current recession and the Great Depression, I will prove the current recession causes the effects will much less than the Great Depression, and the Great Depression will not replay. Back to 1929~1933, on October 29 1929, the “Black Tuesday” came to the United States. On this day, American financial world crashed, the stock’s price fell from top to bottom, fell 40 percentages from 383, also the Dow Jones stock index fell 22 percentages(Baidu, 2009).
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From this date to November 13th 1929, there was thirty billion disappeared in the market, this number equal to the total expenses of World War?. However, the crash of the stock market was just the beginning of a horrible economic crisis. Even through the Great Depression began at the collapse of the stock market; many experts still thought the influence from the collapse of the stock market was limited, because stock was just a little part of family’s property, it cannot affect Marginal Propensity to Consume(MPC) very much.
However, the “Black Tuesday” was merely the beginning of the terrible issue, was just miniature of the Great Depression. The Great Depression caused a bunch of extremely serious social problem, for example, there were about 2 million to 4 million students had to drop their school. Even some people could not suffer the pain from mentality and physiology then suicide. The most significant problem was that 8. 3 million people lose their job; the unemployment rate reached such a high level which was 25%(Xu, 2009).
Almost in every city, the poor people who were in line at the food bank as long as to several blocks. By the end of 1932, totally, there were about 2 million people roamed in the streets, there were no home for them. In September 1932, magazine Fortune estimated that 34 million people had no income; this population was 28% of the whole population of the United States. And at least 15 million people were looking for a job, but there was no job offer to them at that time (Baidu, 2009). Change the view to the economy.
At the beginning year of the Great Depression, since the economy became weakness, it was hard for bank to get back of their loan, and the public people were anxious so that they went to the bank to withdraw their deposit. Therefore, at that time 50% was closed. The government took conservative measure, decreased the money supply so that more and more banks had to be closed. Consequently, 9000 banks had already closed and 130 thousands enterprises went to bankrupt. The total output of industry and nation income (NI) decreased 50%, the trade price of goods reduced one third and merchandise trade also cut two thirds (Techcn, 2009).
In 1920s, the people’s confidence of the forward economy was expressed in the stock market. From 1921 to 1929, Dow Jones Indexes increased from 75 to 363, average growth rate (AVGR) was 21. 8% which was an incredible number (Su, 2009). Under this prosperous situation hided possibility which can cause the Great Depression. At the beginning of 1929, the stock market of United States of America was crazy, the price of stock raised times by times. As I mentioned before, rather than say black one day, I would like to say black week or black month.
On October 24th 1929, the market of New York exchange suddenly got a crash, the speed of falling stock price too quick to catch up by the ticker. Even though some consortiums and the president came out to try to save the market, it did not work. On October 28th and 29th 1929, Dow Jones Indexes fell 38. 33, 13. 47% and on Tuesday fell 11. 73% (Black Tueday, 2002). During this short week, American people lose 10 billion dollars in stock exchange. Time went to the middle of November 1929, the stock’s price in New York Exchanges fell 40%, lose 26 billion dollars.
Millions of public people lose their whole life’s money. During the Great Depression, the stock price of US steel fell from $262 to $22, and the stock price of GM fell from $73 to $8 (Techen, 2009). Gross domestic product (GDP) fell 25% during 1929-1933, and Genuine Progress Indicator (GPI) of 1933 decreased 24. 6% compared to 1929 (Hexun,2009). “In economics, a recession is a general slowdown in economic activity over a long period of time, or a business cycle contraction. During recessions, many macroeconomic indicators vary in a similar way.
Production as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall during recessions; bankruptcies and the unemployment rate rises. ”(Wikipedia, 2009). This is the definition of the recession. Compared to the Great Depression, we can figure out some similarities. For example, GDP, employment, and investing spending fall in the current recession or the Great Depression. In current recession, GDP fall 2%, unemployment rate is 8. 1%, and Dow Jones Indexes decrease 52 % (Xu, 2009).
From these data, we know that in current recession for the society, many people lose their jobs, also many enterprises go to bankrupt as well as some banks. For the stock market, the Dow Jones Indexes can tell us that the stock market do not in a nice situation. For the whole country, GDP fall so that American economy gets into recession. However, if we take a close look at these numbers, we can see these numbers are different from the Great Depression. As I mentioned, during the Great Depression, GDP fell 25%, unemployment rate was 25%, and Dow Jones Indexes fell 89%.
These numbers in current depression are much smaller than the Great Depression; therefore, these numbers prove that the current recession effect will much less than the Great Depression. Reason of the current recession and the Great Depression is different. The current recession is caused by the subprime mortgage crisis. “The subprime mortgage crisis is an ongoing real estate crisis and financial crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe.
The crisis, hich has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system” (Wikipedia, 2009). The subprime mortgage crisis happened because of moral hazard. From our textbook we understand that the risk that one party to a transaction takes actions that harm another party called moral hazard. About the reason of the Great Depression, it seems like the stock market’s crash lead to the terrible issue, but the real reason is the unbalanced or unhealthy development of the economy.
The strategies from the government to deal with these two issues are different. During the Great Depression, the Federal Reserve did not get the right strategy to deal with the market less liquidity, on the other hand, the current U. S. government decrease the interest, create some new strategies to activate the market, also try their best to save the economy. Also, the current government takes out 700 billion dollars to save banks and insurance companies.
Totally, government plan to use 787 billion dollars to stimulate the economy and increase 3. 5 million chances of employing (Xu, 2009). Consequently, the Great Depression will not replay. However, even we can predict the current recession’s effect will less than the Great Depression, we also need pay enough attention to the current recession. In fact, the entire world’s economy is not a good condition, what we need to do is not just the save the economy but also prevent the recession happen again and again.
Remember. This is just a sample.
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