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The Great Depression and The Great Recession

Paper type: Essay
Pages: 5 (1136 words)
Categories: Economics, The Great Depression
Downloads: 15
Views: 5

In history, there had been two big economic crisis, the great depression and the great recession. The Great Depression refers to the economic crisis which originated in the United States between 1929 and 1933. The great recession is a recession triggered by the financial crisis that began to emerge on August 9, 2007. There are similarities and big differences between the two crises. Therefore, in this essay, I will first analyze their similarities and then discuss their differences from the causes, impacts and solutions.

Although the two crises happened in different period, there are still some similar backgrounds. Before the crises, the American economic were booming.To be more specific, in 1929, the us economy was booming. Treasury secretary Andrew Mellon assured the public in September 1929 that “there is now no reason to fear that this boom will continue.” Meanwhile, in the early and mid-2000s, the us housing was also boom. Actually, I think these were false prosperity because behind the economic boom, there were many problems such as widening gap between the rich and the poor and the stock market is full of bubbles.

Because of these problems, the crises finally happened. Moreover, both started in the us and quickly spread to other capitalist countries such as Europe and Asia and they last longer. So both crises were devastating.After the crisis, social production shrank rapidly, unemployment increased, per ca-pita disposable income decreased, and consumption power decreased, resulting in economic downturn. Then, let’s talk about the differences.

Firstly, the causes are different. After the industrial revolution, the productivity of the United States developed rapidly, but in the capitalist society, the means of production were privatized, and the capitalists basically monopolized all the means of production, thus giving them unlimited opportunities to make profits. But the vast majority of labour are getting poorer, and the unequal distribution of national income has led to a widening gap between the rich and the poor. In the market, the asset-owners blindly expand production for their own interests and produce too many products which means the supply is big, but the market demand is limited and the product surplus eventually leads to the contradiction between production and the market. This was the cause of the great depression. Turn to the cause of the great recession. When people can’t afford a house and the capitalists want to sell the house to people to earn high profits, the capitalists invented loans to buy houses and consume in advance. This has greatly increased people’s false demand for houses, but this kind of behavior will only transfer the present contradiction to the future, and one day it will break out.

At the same time, under the impetus of the new liberalism economic policy, the American financial industry has set off wave after wave of reform and innovation upsurge. Financial innovation, mixed operation and development of financial derivatives are listed as the important tasks of reform.Real estate is one of the three pillars of the U.S. economy. In order to sell more houses, capitalists even provide sub-prime mortgage loans to consumers with poor credit.Banks and financial institutions transfer the risk to other investors with the help of sub-prime securities, so that the chain of real estate loan realization continues to extend. Once a payment crisis occurs in a certain link, the whole chain will cause “domino effect”. Finally, the sub-prime crisis broke out, affecting the global financial field. Secondly, the impacts are different. The great depression devastated the American economy. Half of all Banks failed. Unemployment rose to 25 percent and homelessness increased. House prices plunged by 30%, international trade by 65% and prices by 10% a year. By 1933, the unemployment rate was 24.9 percent.

Almost 15 million people are unemployed. That’s the highest unemployment rate in the nation’s history.As the economies of various countries deteriorated, world trade fell by 66%, and the total number of units fell by 25%. By 1939, it was still below the level of 1929.Between 1930 and 1932, prices fell by 30%. Deflation has helped consumers with lower incomes. In contrast, from the beginning of the recession in December 2007 to the official end in June 2009, GDP fell by 4.3%, the unemployment rate fell from 5% to 9.5%, and reached a peak of 10% in October 2009. As we can see in these data, the Great Depression was much worse than the Great Recession.By the way, the financial crisis of 1929 mainly affected the capitalist countries, but the financial crisis of 2008 spread all over the world.

Thirdly, the solutions are different. In 1932, Franklin Roosevelt replaced the horrified Hoover. He promised to establish a federal government plan to end the Great Depression. During the “100 Day New Deal”, Roosevelt, while solving the banking problem through the emergency banking law, also tried hard to urge Parliament to pass the “Agricultural Adjustment Law” and “National Industrial Recovery Law”, which not only greatly alleviated the difficulty of unemployment. According to the 1935 tax law, the tax rate for companies with incomes below 50, 000 USD was reduced to 12.5%, and those with more than 50, 000 USD increased to 15%.As a result of the early recovery of the economy, many infrastructure constructions have benefited the US economy immensely.

In February 2008, President Bush signed the so-called “economic stimulus law” into law. The legislation provides taxpayers with tax refunds (US $ 600 to US $ 1, 200) and encourages them to spend these tax refunds; tax cuts; and increases the loan limit for federal housing loan programs (e.g Fannie Mae and Freddie Mac). After taking office, President Obama signed the American Recovery and Reinvestment Act in February 2009. This is a large-scale stimulus plan that allocates $ 787 billion to redeem redemption rights. Relief, tax reduction, infrastructure expenditure, etc. The 1933 Dodo-Frank Act was passed in 2010. The bill gives the federal government the ability to take over banks if they believe they are on the verge of collapse and prevent so-called ‘predatory loans’ for unqualified borrowers.

In conclusion, the background of the Great Depression and the Great Recession are similar, and there are problems of false prosperity. The speed and duration of the two crises are very fast and long. However, the reasons for the crisis are different and the scope of influence is different. Therefore, the government’s response to the crisis and its solutions are also different. This shows that the difference between the Great Recession and the Great Depression is greater than the same point, and I think the Great Depression is more serious than the Great Recession. In my opinion, there will not be a recession again. ecause house prices and foreclosures have been restored. Rents are relatively high, and now people have regained confidence that house prices will continue to rise. The once-endless foreclosure channel has disappeared.

Cite this essay

The Great Depression and The Great Recession. (2020, May 02). Retrieved from https://studymoose.com/the-great-depression-and-the-great-recession-essay

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