The Great Depression VS.
Late 2000’s Recession
By Xiangyu Shen
5th Grade GT
2011-2012
Content
• Introduction
• The Great Depression • The Great Recession
– Background
– Causes
– Effects
– Solution/Government
Reaction
• Comparison
• Conclusion
– Background
– Causes
– Effects
– Solution/Government
Reaction
The Great Depression
• A severe worldwide economic depression
• The timing: depended on the country, but in
most countries it started in around 1929 and
lasted until the late 1930s or early 1940s.
• The longest, most widespread, and deepest
depression of the 20th century. In the 21st
century, the Great Depression is often used as
an example of how far the world's economy
can decline.
• The depression started in the U.S., starting with the
fall in stock prices( the direct opposite of an inflation)
that began around September 4, 1929 and became
worldwide news with the stock market crash of
October 29, 1929 (Black Tuesday). From there, it
quickly spread to almost every country in the world.
The Late 2000’s Recession
• Sometimes referred to as the Great Recession, the Lesser
Depression, or the Long Recession, it was a severe global
economic problem that began in December 2007 and took a
particularly sharp downward turn in September 2008.
• The Great Recession has affected the
entire world economy, with higher detriment
in some countries than others.
• It is a major global recession characterized by
various systemic imbalances and was sparked by
the outbreak of the late-2000s financial crisis.
The Great Depression
Background
• After World War I, the European economy was in tatters.
France and Britain demanded reparations from the defeated
Germany, leading to spectacular collapse in the value of the
Mark.
• Meanwhile, the U.S. emerged as a global leader and went on
to the “Roaring Twenties.” At first the rise in stock prices was
largely justified by output and profits - it simply reflected the
growing value of American businesses. But increasingly the
"bull market" became a speculative boom, in which people
were prepared to pay ever-higher prices for stocks regardless
of the actual value of the companies' assets of products. "It
was a gambler's paradise, in which every bet seemed a surefire winner, as stock prices rose and rose. "
Background
• More and more ordinary
people put their life
savings into stock
market. Meanwhile,
Wall Street
insiders artificially boost
ed the price of stocks in
worthless companies in
which they had a large
stake.
• US investigators
withdrew money from
abroad to put it into the
US stock market boom.
Background
• In the USA, farm prices were falling and the
output of some industries was weakening.
• Prohibition leaded to speakeasies and law
flouting. Respect for law enforcement
dwindled as many officials and officers were
bribed to overlook gang activities.
Causes
Although there were
many causes of the Great
Depression, some of the
main causes were:
• Misuse of credit
• Unsupervised Investing
• Speculating
• Short-Term Investments
• Careless Loans
• Limited Tolerance of
Law
Effects
Effects of depression in the U.S.:
– Unemployment rate increased significantly:
• 13 million people became unemployed.
• In 1932, 34 million people belonged to families with no regular fulltime wage earner.
• In 1933, 25% of all workers and 37% of all nonfarm workers were
unemployed.
– The number of poor people increased:
• Family income reduced by 40% between 1929~1932
• Many people lost their homes or farms.
• Over 60% of Americans were categorized as poor by the federal
government in 1933.
• Children were malnourished
• Many people became ill with diseases such as tuberculosis.
Effects
– Industrial production fell by nearly 45% between 1929 and 1932.
– Homebuilding dropped by 80% between the years 1929 and 1932.
– Between 1929 and 1933, U.S. GDP fell around 30%, and the stock market
lost almost 90% of its value.
– Corporate profits had dropped from $10 billion in 1929 to $1 billion in
1932.
– Bank failure:
• From 1929 to 1932, about 5,000 banks went out of business.
• By 1933, 11,000 of the US' 25,000 banks had failed.
• Nine million savings accounts had been wiped out between 1930 and
1933.
– Immigration dropped:
• In the last prosperous year (1929), there were
279,678 immigrants recorded, but in 1933 only 23,068 came to the
U.S.
• In the early 1930s, more people emigrated from the United States
than immigrated to it.
Solution/Government Reaction
The First New Deal:
1. Roosevelt orders 4-day national bank holiday.
2. He creates the FDIC and passes the Glass-Steagall Banking Act.
3. The Truth in Securities Act gets passed.
4. He creates jobs: (1) Civilian Conservation Corps (CCC)
(2) Civil Works Administration (CWA)
(3) Public Works Administration (PWA)
(4) Works Progress Administration (WPA)
5. America goes off the gold standard.
6. The Federal Emergency Relief Act (FERA) gets passed.
7. The Emergency Farm Mortgage gets passed.
8. The Agricultural Adjustment Act (AAA) is passed.
9. The Tennessee Valley Authority (TVA) is formed.
10. The Home Owner's Loan Corporation (HOLC) Act is passed.
Solution/Government Reaction
11. The National Industrial Recovery Act (NIRA) is formed and sets up the
National Recovery Administration (NRA).
12. The Social Security Act is passed.
13. The Banking Act of 1935 is passed.
14. The National Youth Administration is formed.
Many large companies had complaints about the New Deal Programs and
went to court. In 1935 and 1936 many of the New Deal programs were
declared unconstitutional and struck down by the Supreme Court. After his
reelection Roosevelt proposed a bill to add a new justice for every old one
over 70 with a limit of 15. It was surrounded by a firestorm of controversy and
after that (ironically) the Supreme court declared less of them
unconstitutional.
The Second New Deal:
1. A second AAA
2. The Surplus Marketing Administration
3. The Food Stamp Plan
4. The Fair Labor Standards Act
The Late 2000’s Recession
Background
Commodity boom: The decade
of the 2000s saw a global
explosion in prices, focused
especially
in commodities and housing,
marking an end to
the commodities recession of
1980–2000. In 2008, the prices
of many commodities, notably
oil and food, rose so high as to
cause genuine economic
damage,
threatening stagflation and a
reversal of globalization.
Housing bubble: By 2007, real estate bubbles were still under way
in many parts of the world, especially in the United States, United
Kingdom, etc. U.S. Federal Reserve Chairman Alan Greenspan said in
mid-2005 that "at a minimum, there's a little 'froth' (in the U.S.
housing market) ... it's hard not to see that there are a lot of local
bubbles". The Economist magazine, writing at the same time, went
further, saying "the worldwide rise in house prices is the biggest
bubble in history".
Inflation: In February 2008, Reuters reported
that global inflation was at historic levels, and
that domestic inflation was at 10–20 year highs
for many nations.
Causes
The central debate about the origin has been focused on the
respective parts played by the public monetary policy (in the
US notably) and by private financial institutions practices. In
the U.S., mortgage funding was unusually decentralized,
opaque, and competitive, and it is believed that competition
between lenders for revenue and market share contributed to
declining underwriting standards and risky lending.
• Former Federal Reserve Board Chairman Alan Greenspan,
Treasury Secretary Robert Rubin, and SEC Chairman Arthur
Levitt vehemently opposed any regulation of financial
instruments known as derivatives. Ultimately, it was the
collapse of a specific kind of derivative, the mortgage-backed
security, that triggered the economic crisis of 2008.
• The failure rates of subprime mortgages
were the first symptom of a credit boom
turned to bust and of a real estate shock. But
large default rates on subprime mortgages
cannot account for the severity of the crisis.
Rather, low-quality mortgages acted as an
accelerant to the fire that spread through the
entire financial system.
Effects
1. Gross domestic product (GDP) dropped: Real gross domestic
product (GDP) began contracting in the third quarter of 2008,
and by early 2009 was falling at an annualized pace not seen
since the 1950s.
2. Capital investment declined: Capital investment decline
matched the 1957–58 post war record in the first quarter of
2009. The pace of collapse in residential investment picked up
speed in the first quarter of 2009, dropping 23.2% year-on-year,
nearly four percentage points faster than in the previous quarter.
3. Domestic demand declined.
4. Trade and industrial production declines,
pollution decreases, unemployment increases,
travel decreases, and small-business lending
decreases, political instability rises.
• Countries most affected: Ukraine, as well as Argentina and
Jamaica, are the countries most deeply affected by the
crisis. Other severely affected countries are Ireland, Russia,
Mexico, Hungary, the Baltic states, United States and United
Kingdom. By contrast China, Japan, Brazil, India , Iran, Peru
and and Australia are among the least affected.
Solution/Government Reaction (mainly US)
1. Bailout of U.S. financial system
2. FDIC increases insurance limit to
250,000. Treasury also announced on
September 19 a new $50 billion program to
insure the investments, similar to the Federal
Deposit Insurance Corporation (FDIC) program.
3. The American Recovery and Reinvestment Act of
2009, abbreviated ARRA and commonly referred to
as the Stimulus or The Recovery Act, is an economic
stimulus package enacted by the 111th United States
Congress in February 2009 and signed into law on
February 17, 2009, by President Barack Obama. The
primary objective for ARRA was to save and create jobs
almost immediately. Secondary objectives were to
provide temporary relief programs for those most
impacted by the recession and invest in infrastructure,
education, health, and ‘green’ energy.
Comparison
•
•
•
•
•
Similarities:
Background: Financial bubble
Symptoms: Stock market crash
Causes: Misuse of credit and unsupervised
investment
Effects: unemployment rate increases, GDP
drops, domestic demand declines
Government reaction: insure bank deposits and
instill confidence in people, create jobs
Differences
• Over the 79 years between 1929 and 2008,
great changes occurred in economic
philosophy and policy
• The stock market had not fallen as far as it did
in 1932 or 1982, the 10-year price-to-earnings
ratio of stocks was not as low as in the '30s or
'80s, inflation-adjusted U.S. housing prices in
March 2009 were higher than any time since
1890 (including the housing booms of the
1970s and '80s)
• The depression of the early '30s lasted over three-and-ahalf years, and during the 1930s the supply of money
(currency plus demand deposits) fell by 25% (where as in
2008 and 2009 the Fed "has taken an ultraloose credit
stance").
• Furthermore, the unemployment rate in 2008 and early
2009 and the rate at which it rose was comparable to most
of the recessions occurring after World War II, and was
dwarfed by the 25% unemployment rate peak of the Great
Depression.
• The main cause of the recession is the burst of housing
bubble.
• Government reaction was more prompt and more useful in
2008's recession.
• The recovery was faster in this recession.
Conclusion
Both the Great Recession and the Great
Depression were after and because of a bubble
bursting. They were caused by misuse of credit and
in general losing control of an investment market or
investing.
The freedom of investment is important, but the
government should have a degree of regulation
over them.
Note: The current recession has not ended yet. It
could deepen toward another depression.
Sources
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Black Tuesday
Brookfield, CT
The Millbrook Press, 1995
Pietrusza, David
The Roaring Twenties
San Diego, CA
Lucent Books, 1998
Grant, R.G.
The Great Depression
Great Britain
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Mllichap, Nancy
The Stock Market Crash of 1929
New York City, NY
New Discovery Books, 1994
Harris, Nathaniel
The Great Depression
Chichester, Sussex
Richard Clay Ltd.,1988
Collier, Christopher & Collier, James
Lincoln
Progressivism, the Great Depression, and
the New Deal 1901-1941
New York, U.S.A.
Benchmark Books, 2001
Sources
Nardo, Don
The Great Depression
San Diego, CA
Greenhaven Press Inc.,
2000
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Life During the Great
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And Then the Roof Caved In
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The Great Depression and
the New Deal
USA
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Sources
Wikipedia
http://en.wikipedia.org/wiki/Great_Depression
http://en.wikipedia.org/wiki/Prohibition#Prohibition_in_the_United
_States
http://en.wikipedia.org/wiki/Prohibition
http://en.wikipedia.org/wiki/Late-2000s_recession
http://en.wikipedia.org/wiki/The_Roaring_Twenties
http://en.wikipedia.org/wiki/Comparisons_between_the_late2000s_recession_and_the_Great_Depression
Yahoo! Finance
http://finance.yahoo.com/q/bc?s=%5EDJI&t=5y&l=off&z=l&q=l&c=
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