Great Depression Compare And Contrast Essay
Almost seventy years after the worst economic crisis struck the world in the 1930s, history repeats itself again. The Great Depression that occurred in 1929 and today’s great recession have many similarities. Both had disastrous effects on the global economy. Like today, many years of economic deregulation paved the way for these turmoils and social troubles. Banks were giving away cheap credits without running any background information on their customers. People took advantage of this and started buying houses and other luxuries they couldn’t afford. Default in paying back their mortgage led to many problems such as real-estate crisis, rising inflation, soaring unemployment rates, and stock market crash.
The 1920s, also known as “The Roaring Twenties”, had been an unexampled success in America’s stock market. Investors tried to benefit from this upturn. They started digging in their own savings and buying stocks on margins. Stock brokers were charging high rates for investors who desired to purchase stocks on margins but this did not matter for them because the market was rising sharply in a fast pace. From the beginning to the end of this decade, stocks more than quadrupled in value. Stock prices started to unexpectedly …show more content…
decrease in October 21, 1929. In less then a week, the market lost approximately 25 percent of its value. This created a wave of fear around the nation. People began to sell massive quantities of their stocks. On Tuesday, October 29, after a week from the sudden fall, the market severely crashed, so much that some stocks couldn’t be sold at any price. This day became known as “Black Tuesday”.
In the beginning of the 1920s, banks started to encourage their customers to acquire cheap credits to finance their homes and other utilities.
Real-estate market was exceptionally prosperous. The number of Americans owning their own homes reached an unprecedented record of forty nine percent. A similar phenomenon occurred between the years of 2006 and 2008. Everyone was taking advantage of the easy access to mortgages. Analysts show that during this period, about sixty eight percent of Americans owned their homes. This real-estate boom all ended when a wave of foreclosure hit the financial sector globally. This situation was worsened by the steep decline in house prices which left home owners unable to pay or refinance their
mortgages. One of the major causes of the real-estate bubble is the banking system. Although the financial sector in 1929 was relatively healthy, banks failed to withstand the severe economic crisis. In fact, unlike today, the banking system was not supported at federal level and by central banks. This resulted in the closure of over 9,000 banks in the U.S. Alone. Wall Street investment firms collapsed. At the depth of the crisis, more than a dozen states lacked any banking services at all. But during the recent recession, after the fall of the Lehman Bros. and financial institutions, United States and the European Union reacted very fast to avoid further deterioration. They ejected tremendous amount of cash in the market and devised a multibillion dollar bailout plan to prevent the reoccurrence of a similar crisis as the one experienced back in the 1930s.
The issues above created a down-spiraling effect. Many other sectors of the economy were severely affected. For instance, building constructions and new investments stalled. Companies and factories laid off many workers due to the decrease in product demands and scarcity of cash. In the 1930s, within a few months after the crash, the number of unemployed workers increased from 700,000 to 3.5 million representing a peak of twenty five percent. Similarly, in the recent recession, the percentage of jobless people increased from five percent to about ten percent.
I don’t have a strong knowledge in economy but in my humble opinion, from what I learned from studying about the two crisis, these troubles could have been avoided if this simple rule has been followed: “It's important to grow an economy the old-fashioned way: earning money, and then spending what you've earned. You can't run an economy without having enough income for workers to spend on consumption.”
The 1920s, also known as “The Roaring Twenties”, had been an unexampled success in America’s stock market. Investors tried to benefit from this upturn. They started digging in their own savings and buying stocks on margins. Stock brokers were charging high rates for investors who desired to purchase stocks on margins but this did not matter for them because the market was rising sharply in a fast pace. From the beginning to the end of this decade, stocks more than quadrupled in value. Stock prices started to unexpectedly …show more content…
decrease in October 21, 1929. In less then a week, the market lost approximately 25 percent of its value. This created a wave of fear around the nation. People began to sell massive quantities of their stocks. On Tuesday, October 29, after a week from the sudden fall, the market severely crashed, so much that some stocks couldn’t be sold at any price. This day became known as “Black Tuesday”.
In the beginning of the 1920s, banks started to encourage their customers to acquire cheap credits to finance their homes and other utilities.
Real-estate market was exceptionally prosperous. The number of Americans owning their own homes reached an unprecedented record of forty nine percent. A similar phenomenon occurred between the years of 2006 and 2008. Everyone was taking advantage of the easy access to mortgages. Analysts show that during this period, about sixty eight percent of Americans owned their homes. This real-estate boom all ended when a wave of foreclosure hit the financial sector globally. This situation was worsened by the steep decline in house prices which left home owners unable to pay or refinance their
mortgages. One of the major causes of the real-estate bubble is the banking system. Although the financial sector in 1929 was relatively healthy, banks failed to withstand the severe economic crisis. In fact, unlike today, the banking system was not supported at federal level and by central banks. This resulted in the closure of over 9,000 banks in the U.S. Alone. Wall Street investment firms collapsed. At the depth of the crisis, more than a dozen states lacked any banking services at all. But during the recent recession, after the fall of the Lehman Bros. and financial institutions, United States and the European Union reacted very fast to avoid further deterioration. They ejected tremendous amount of cash in the market and devised a multibillion dollar bailout plan to prevent the reoccurrence of a similar crisis as the one experienced back in the 1930s.
The issues above created a down-spiraling effect. Many other sectors of the economy were severely affected. For instance, building constructions and new investments stalled. Companies and factories laid off many workers due to the decrease in product demands and scarcity of cash. In the 1930s, within a few months after the crash, the number of unemployed workers increased from 700,000 to 3.5 million representing a peak of twenty five percent. Similarly, in the recent recession, the percentage of jobless people increased from five percent to about ten percent.
I don’t have a strong knowledge in economy but in my humble opinion, from what I learned from studying about the two crisis, these troubles could have been avoided if this simple rule has been followed: “It's important to grow an economy the old-fashioned way: earning money, and then spending what you've earned. You can't run an economy without having enough income for workers to spend on consumption.”