Assignment
Great Depression versus Current Recession
Questions to answer:
1. 1. How did the Great Depression start?
There were a chain of events that occurred during the “Roaring 20’s” that would eventually lead to the Great Depression of 1929. During this time, many people were investing in stock markets as a popular medium to get rich fast. However, some of them did not have the money to purchase the stocks, so they went to the bank to get loans. Back then, the banks only required a ten percent down-payment on the loans they made. So when the stock prices started falling, everyone started to cash in their stocks. However, that was a huge mistake because banks did not have any money to give the people since most people had gotten loans that emptied the bank. Then, the stock market crashed in October 29, 1929 which plunged the world into the Great Depression for the next twelve years. That day became known as Black Tuesday.
2. 2. How did the current recession start?
The current recession happening in the United States was brought about by the crash of the housing market. This started with inappropriate lending of money to people who could barely afford to pay it back to purchase a home, otherwise known as subprime mortgages. This idea is similar to the stock market crash of 1929, because people buy things without the money to pay them back. So when interest rates rose, people could no longer afford to pay back the minimum monthly payments back to the bank for the loan. Therefore, banks had to seize all houses as the collateral for the loans. Now the bank had insufficient funds and lots of empty houses people would not buy. Then, several banks went bankrupt and sent the world spiraling into another major recession.
3. 3. How did the government take part following the event? Were/ are they successful attempts?
In the stock market crash of 1929, the government quickly set up protectionism policies that heavily taxed imports to protect their own economy, but this action worsened global trade. Then, Roosevelt introduced the New Deal policies that would slowly help the economy recover. The government and private charities started out by helping out the homeless and unemployed by providing relief programs. The New Deal also reformed the financial system in the United States to avoid future crisis. Suddenly, the whole country was plunged into WWII. Many people were enlisted as soldiers and others got a job at factories to make guns and ammunition.
During the current recession, the government helped several companies by giving out bailouts. They helped the companies such as General Motors and Chrysler. This ensured that the unemployment rate wouldn’t skyrocket since these types of companies have many workers. However, the government couldn’t help everyone so some companies, such as the Lehman’s Brothers’ investment bank, went bankrupt. Despite that, the economy is slowly recovering and the future is still unclear.
4. 4. What factors are present now that were not present during the Great Depression? (ie. banking, online resources, etc.)
Recently, technology just keeps getting better and better that we can easily communicate with others across the world in an instant. Now we can do all of our banking online in the comfort of our own homes if we like. We can also carry our credit cards and shop till we drop. However, these comforts come with their own dangers. It is easier for strangers steal money from you by hacking into your account or stealing your credit card. Credit cards also have very high interest rates that will eat at you if you miss a payment. Many people have the wrong impression upon credit cards, because they think that there is no limit to what they spend when in reality they could be driving themselves into bankruptcy. There are also many new social reforms that help people going through hardships. As you can see there have been many changes that could be positive or negative.
5. 5. How did these two affect United States’ GDP?
These two occurrences really damaged the US’s GDP by reckless spending and loans. When people think they can buy when they really shouldn’t it can bring about an economic downturn. As you have seen, they have caused consumers to stop spending and start saving money which decreases total consumer spending. In turn, unemployment rate soars due to lack of work in the workforce because companies are struggling to keep themselves together. Therefore, families will have less income to spend on luxuries and even necessities. This cycle will continue until the whole country is in chaos if there wasn’t relief. So as I have mentioned, decreased consumer spending and decreased income caused a drop in GDP of the country.
6. 6. Reflection: In your own words, tell me which one has made more of an impact on the world.
I think that the Great Depression was worse than the current recession because the Great Depression was way longer and more severe. The Great Depression affected many countries around the world and drove them into despair. Every country started to enact protectionism policies which not only worsened global trade but exacerbated their own economy even further. There were many riots and protests toward the governments who could only do so much. Even job creation programs and relief wasn’t enough to put the economy on track. The worse part of this situation was that it lasted a long time. Imagine yourself being stuck in a time where you couldn’t even afford to feed yourself. Well that must be pretty bad. This impacted the world so badly that it allowed psychotic dictators such as Adolf Hitler gain power. Even sadder than that is that WWll is the only reason why countries were able to get out of the depression. Many lives were sacrificed, but it helped the economy through job creation. The solution for the Great Depression was really twisted. I really hope that never happens again.
Resources:
Marking:
· Please use 5 resources
· Insight of reflection
· 600 words
