Depression to Recession Contrast

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Depression Lesson to Recession

November 27, 2012

TABLE OF CONTENTS

ABSTRACT …...............................………………..…………………………………….3 INTRODUCTION…………………….…………………………………………….……3 PART I
CAUSES………………………………..…………………………………………………4 RESPONSE………………………………….……………………………………………8 ALTERNATIVE STRATAGIES,ACTIONS,ANDIMPLEMENTATIONS……….…….14 POSITIVE AND NEGATIVE AFFECT OF POLICIES……….……………..………….17 CAUSES OF THE FINANCIAL CRISIS………………………..…………..….………..22 THE GREAT RECESSION………………………………………………………………25 ALTERNATIVE RECESSION STRATEGIES…………………………………………..36 FORESEEABLE OUTCOME OF THE RECESSION.................................………….........39 EVALUATION OF GOVERNMENT RESPONSES............................................................41 PART II

ECONOMIC BUBBLES…………………………………………………………………..45 CONCLUSIONS/RECOMMENDATIONS………………………………………………59 REFERENCES…………………………………………………………………………….61

APPENDIX

Table 1…………………………………………………………………………..…60

Abstract

Business cycles are inevitable in the existence of an economic system. They are recorded, studied, and analyzed by economists, economic historians, financial analysts, investors, government officials, and professionals from all angles. From there, monetary policies, investment strategies, economic theories are developed and devised in response to changes, events, peaks or troughs. The most commonly used as an example of how an event can affect the global financial system is the Great Depression. It serves as a benchmark for the severity of an economic decline. Its causes and effects have been used as a textbook case. One would think that the advance of technology which enables the availability of information, combined with the exhaustion of study of the Great Depression, history would not repeat itself. That school of thought was proven to be far from correct as the financial crisis in the United States unfolded in 2008. Dubbed as the Great Recession, the effect of it was astounding and long lasting that as of the time of this research, it is still unclear if the US is completely out of the danger of falling back. This research attempts to find the similarities and disparities between the Great Depression and the Great Recession in term of causes, government response, and possible alternatives. By doing so, we will present our finding: each event has a linkage to an asset bubble and a lack of government oversight. Furthermore, this research will also attempt to present alternative approaches to prevent the repeat of the financial debacle and restore the economy from the viewpoint of the consumers.

Introduction

In the course of the Great Depression of 1930s and the current Great Recession, the American nation and the world have experienced the significance of economic crisis and its timeless effects. The Great Depression in the 1930s was the longest and most severe catastrophe in the American history. It permanently changed the government role in regulation, and affected the public belief in the government. And in 2008, almost eight decades later, Americans again faced an economic crisis that was said to be the worst since the Great Depression of 1930s. Many refer to this current catastrophe as the Great Recession. Researches have shown some interesting similarities between the two great catastrophes, only the Great Depression was much worse, especially in terms of people suffering. The main purpose of this project is to provide an in-depth comparison and analysis between the Great Depression and the Great Recession in all aspects of governmental, social and economic reactions.

PART I
Causes of the Great Depression

The underlying cause of The Great Depression was an overall drop in aggregate demand, which was a massive decline in spending across the United States. This fundamental cause is viewed by most economists as the primary reason for all economic troughs. For most this seems more like an effect an economic downturn has on an economy than a cause, but these drops in...
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