The Great Depression of 1929 Vs. The Great Recession of 2008
In America there have been great economic struggles and triumphs. The many great leaders of this country have foraged, failed, and overcome some very difficult times. Comparing the Great Depression of 1929 and the Great Recession of 2008 has revealed similarities that by learning from our mistakes in 1929 could have prevented the latest recession. I will discuss the causes of the Great Depression and the Great Recession, and what policies were implemented to reverse the economic downfalls.
The Great Depression of 1929 is said to have many causes. In an article on about.com Martin Kelly states there were five main causes of the Great Depression. First is the stock market crash of 1929. October 29, 1929 or Black Tuesday, was the fourth day of the stock market crash. For the New York Stock Exchange it was the worst day in history because it signaled the start of the Great Depression. Within hours on Black Tuesday the stock market lost all the gains for the entire year. The Dow Jones Industrial Average gapped down from the previous day’s close of 260.64, opening at 252.6. It fell to 212.33, closing a bit up at 230.7, an eleven percent loss. Over sixteen million shares were traded, beating the record of almost thirteen million traded on Black Thursday. That was worth fourteen billion, or one hundred eighty five billion in 2011 dollars. As bad as the losses were they were not what made Black Tuesday so devastating. The crash set the direction of the stock market, and then the economy, for the next decade. In just four days the stock market dropped twenty five percent, which was forty percent in market value or thirty billion dollars. In 1929 this was ten times the Federal budget. By November 13, the day when stock prices hit their lowest point in 1929, over one hundred billion dollars had disappeared from the American economy. Today that would be worth over one trillion dollars. Black Tuesday is widely known as the start of the Great Depression, because it signaled a complete loss in confidence in the U.S. financial system. Once the market crashed the Federal Reserve curtailed the amount of money in circulation and raised interest rates, making credit more difficult for the public to secure. Implicating a tight money policy during the boom years of 1928 and 1929 may have restrained the market and strengthened the economy, but it was disastrous once the market had crashed. By doing this the Federal Reserve plunged an economy starved for credit deeper into depression. The Federal Reserve brings us to the second cause of the great depression, bank failures. By implementing higher interest rates, reducing the amount of money put into circulation, and making credit harder to secure, it made it harder for debtors to pay creditors. “Higher interest rates also triggered an international crisis, as the banks of Germany and Austria, heavily dependent on U.S. loans, went bankrupt. The German-Austria collapse, in turn, spread financial panic through Europe and hurt U.S. manufacturers and banks specializing in European trade and investment” Murrin et al (840). Prominent bankers like Morgan Bank, Chase National, and National City Bank of New York tried to stop the crash by buying shares of stocks in an attempt to restore the confidence in the stock market. However, the banks’ intervention signaled other investors to continue to sell, creating continued panic. The loss of confidence created a run on the banks. People withdrew all their savings. The banks did not have enough cash on hand, and were forced to close. When they reopened, they only gave savers ten cents for every dollar. Back then there was no Federal Deposit Insurance Corporation, or FDIC. The Federal Reserve tried to come to the rescue by increasing the value of dollar, by raising interest rates, which reduced liquidity to businesses. Without funds to grow, businesses started laying people off, leading to a...
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