SIMILARITIES AND DIFFERENCES OF THE GREAT DEPRESSION AS COMPARED TO TODAY'S FINANCIAL CRISIS
The financial crisis which the United States is combating today, in many aspects resembles the characteristics and consequences which were the outcome of the Great Depression lasting from the time period 1929 till 1933 (Great Depression).
The Great Depression of earlier times and the financial crisis of the current times from 2003-2008 will be studied in depth in the following research work in order to bring out the similarities and differences the United States faced during these two times of financial turmoil.
Particular highlighted areas would comprise of government bond rates, Gross Domestic Product rates, Interest rates, money supply, and the major stock price trends in both these time periods along with a special analysis of the reactions of Congress will be looked at to try an estimate their impact.
The major impact which the financial turmoil has brought is visible in areas such as Government Bond rates, Gross domestic product of the times, Interest rates, Money supply and Major Stock Prices. The gross domestic product is one of the most crucial indicators to measure the country’s economy and progress rate. GDP represents the total dollar value of all goods and services produced over specific time duration. The Great Depression time period had left a mark which is clearly visible even after 80 years since its conception, the current financial crisis situation is almost similar, though not the same intensity and as grave as it was before but still the savers can do nothing but watch their money disappear as the banking system weakens and financial institutions fail.
GDP is represented as a comparison to the previous quarter or year. A significant change in GDP has a considerable impact on the stock market, and a bad or regressing economy means lower stock prices as in the current times and the Great Depression of 1929.
Government bonds and interest rates are different sides of a coin, when the output is on the rise, the bond prices sweep down and vice versa. (Farell C, 2008). Government bonds and interest rates are methods of providing liquidity in the open market and increase or decrease the quantity of money; hence their comparison is of utmost importance to study the past and the present market liquidity position.
To judge the expansionary and contractionary economic policy, Government Bonds are the best indicators. Interest rate helps in judging the economy maximum sustainable growth rate. On the other hand stock market prices indicate the global risk diversification opportunities available, stock markets are also important economic growth indicator as it aims to increase the liquidity of financial assets, promotes wiser investment decisions, it is a common place where the corporate control mechanism works.
If we compare the economic conditions in 1929 and 2008, then the unemployment rates in 1929 before the crash was between 5 percent and 7 percent and by 1933, the jobless rate augmented to almost 25 percent (Moreschi A, 2008) whereas in 2008 Unemployment fluctuates at around 6.1 percent, highest in the last five years. The home ownership in 1929 was approximately 49 percent which dropped to 44 percent in 1940 whereas in 2008, a record 68 percent was achieved when Americans were found with possession of their own homes. But a wave of foreclosures is certainly going to affect the percentage on the whole Calbreath D, 2008).
The financial sector in 1929 was much stronger than it is today. No major financial institutions collapsed before the stock market crashed but almost 9,000 banks failed during the 1930s, the current times in 2008 (Bruce A, 2008) renowned banking and investment institutions as Washington Mutual, IndyMac, Countrywide, Wachovia, Lehman Bros., Merrill Lynch and Bear Stearns have actually failed with almost 150-200 banks in a dire critical...
References: Clayton A, 6th Oct, 2008, The 2008 Credit Crisis Versus the 1929 Depression, retrieved on 15th November, 2008, http://www.investmentpostcards.com/2008/10/07/the-2008-credit-crisis-versus-the-1929-depression/.
Kuroda H, 16th November, 2005, "The Conundrums of Global Bond Markets - An Asian Perspective", retrieved on 16th November, 2008, http://www.adb.org/Documents/Speeches/2005/ms2005078.asp
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