A comparison of the Great Depression and our current financial crisis
The Great Depression, an event that happened 70 years ago still conjures images of families waiting in soup lines and thousands of men looking for work. In October of 1929 the American economy came to screeching halt and would not see growth for the next three years. This was a major event that sent ripples throughout the world economy. In September of 2008, roughly 79 years later, financial crisis gripped the U.S. once again, and by default, the rest of the world. This time, the one sound investment that millions of Americans make in their lifetime, their homes, lost value. The one sure fire investment for over 60 years now became a liability. These events are two of the most significant historical events that happened in the 20th Century. As you read on, I will compare these two events to show the similarities between them. Also, in some ways I will show how this current recession could be called a depression because by some standards is worse than the depression of 1929.
In the book “America’s Great Depression” it says the Wall-street collapse of September-December 1929 and the Great Depression which followed were among the most significant events of the 20th Century (Rothbard, 1972). Since the last down turn in the economy in 1920, the economy had been booming since. Many economists at the time believed the market was definitely in store for a correction. The first sign that something was amiss was in June of 1929. That was the first month of no growth in nine years, it would only be a matter of time before the stock market would reflect the change. September 3rd, the bull market effectively came to a halt (Rothbard, 1972). On October 9th, the market was falling so rapidly the ticker tape could not keep up. On October 12th, shares started to drop vertically, as people were trying to sell sell sell. And finally came Black Tuesday, October 19, 1929, where people were selling what was left of the good stocks just to maintain some liquidity.
Upon research, it is easy to see that this could have been predicted. In 1929, 1,548,707 customers had accounts with America’s 29 stock exchanges (Rothbard, 1972). About 30 million families had dealings with the stock market. Investors at the time, gambling with other peoples’ money, were called speculators. About 2/3, or 600,000 of these speculators were buying stock (essentially gambling) using margins, or money that was not readily available to them at the time. So basically “speculators” were using money that wasn’t theirs to buy inflated value stocks. Not only that, but they were actually buying those stocks using a margin of the cash needed to actually buy the stock. There was a bubble that was getting bigger and bigger and a correction of epic proportions was all but inevitable. Does this sound familiar?
By 1932 businesses that were once booming were still struggling. US Steel, and General Motors were some of the hardest hit. Economists say that America could have rebounded from this correction must like the correction of 1920, but, American confidence in the stock market kept us in the gray for years to come. Unemployment rose over the same period from 3.2 % to 24.9% in 1933 and 26.7% the following year. 34 million men and women were out of work. (Rothbard, 1972). However, the one saving grace, albeit unbelievable, that would jump start the economies of all the nations affected by the depression, would be war. Eventually, the preparation for WWII would be shot in the arm that the economy needs to get back going in the right direction again, from an economics perspective anyway. Hitler’s Regime was the first to do this. With his Militarization up and running unemployment falls to zero percent. It seems that the depression happened not because of too little government interaction, but maybe too...
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