1

I Rationale
II The Great Depression of 1929-1933
1. Background and causes
1.2Federal Reserve and money supply
2. Effects of the depression
3. Recovery
4. False prophets
III The Great Recession (2007-present)
1. Background and causes
1.1 Easy credit conditions
1.2 Su!prime lending
2. Effects of the recession
3. Recovery
3.1 Emergency and short!term resonses
3.2 Regulatory proposals and long!term
responses
4. False prophets
IV Personal contribtion
1. "omparison et#een $he %reat &epression of
1'2'!1'33 and $he %reat Recession(the current
one)
2
I! Rationale
* have chosen to #rite aout this particularly su+ect ecause my future plans involve
attending the "ollege of Economic Science. $he first time * studied economics in class it
appealed to me and * found it useful as a result of its strong impact on society.
,oreover- the current financial crisis created radical changes #orld #ide increasing the
difference et#een the states more than the %reat &epression did in 1'2'. $his is the
conse.uence of the fact that all countries are part of an international trade net#ork #hich makes
them vulnerale to any sharp fluctuation in the currency of each state. %iven the fact that each
country needs to import goods in order to satisfy its citi/en0s demand- it is completely impossile
to avoid the slight inflation #ithin its o#n economy.
*ntrigued y current events #hich take place no#adays in our country from great loans
from $he *nternational ,onetary Fund- to ma+or decrease in #ages and pensions- * tried to make
some research on this su+ect in order to understand #hy this is happening- #hat is the element
that triggered this recession. * have started to read ooks- ne#spapers- to #atch more and more
$1 sho#s that approach economic issues not only at a national level ut also gloally. 2ot only
did the notions of economy help me to etter understand the issues caused y this economic
crash ut also- gathering information for this paper has enaled me to get more familiar #ith the
#ay the economic conte3t #ill influence our lives- as ma+or changes have already taken place
and drastically measures that #ill affect us all #ill not cease to e ut into action.
"oncerning this- * #ould also add that this generation is one of sacrifice- a generation on
#hich life!or!death e3periments are eing run on ! of course- all of this- from an economical point
of vie#. 4s * mention the #ord 5generation5- my perspective easily slips upon the future ! #ill the
high level decisions that are taken as #e speak improve my standard of life6 7r ho# aout my
children0s life6 $hese .uestions come naturally- as * #onder ho# can their decisions allo# me to
sustain myself and my family- #ithout any useless and harmful constraints.
II The Great Depression of 1929-1933
3
1! "ac#$ron% an% cases
4s mass production has to e accompanied y mass consumption- mass consumption- in turn-
implies a distriution of #ealth 8 not of e3isting #ealth- ut of #ealth as it is currently produced
8 to provide men #ith uying po#er e.ual to the amount of goods and services offered y the
nation0s economic machinery.
*nstead of achieving that kind of distriution- a giant suction pump had y 1'2'!39 dra#n into a
fe# hands an increasing portion of currently produced #ealth. $his served them as capital
accumulations. But y taking purchasing po#er out of the hands of mass consumers- the savers
denied to themselves the kind of effective demand for their products that #ould +ustify a
reinvestment of their capital accumulations in ne# plants. *n conse.uence- as in a poker game
#here the chips #ere concentrated in fe#er and fe#er hands- the other fello#s could stay in the
game only y orro#ing. :hen their credit ran out- the game stopped.
&et is seen as one of the causes of the %reat &epression-
particularly in the ;nited States. ,acroeconomists including Ben
Bernanke- the current chairman of the ;.S. Federal Reserve Bank-
have revived the det!deflation vie# of the %reat &epression
originated y 4rthur "ecil <igou and *rving Fisher=in the 1'29s-
4merican consumers and usinesses relied on cheap credit- the
former to purchase consumer goods such as automoiles and
furniture- and the latter for capital investment to increase
production. $his fueled strong short!term gro#th ut created
consumer and commercial det. <eople and usinesses #ho #ere
deeply in det #hen price deflation occurred or demand for their
product decreased often risked default. ,any drastically cut current
spending to keep up time payments- thus lo#ering demand for ne#
products. Businesses egan to fail as construction #ork and
factory orders plunged.
,assive layoffs occurred- resulting in ;S unemployment rates of over 2>? y 1'33. Banks #hich
had financed this det egan to fail as detors defaulted on det and depositors attempted to
#ithdra# their deposits @en masse0- triggering multiple ank runs. %overnment guarantees and
Federal Reserve anking regulations to prevent such panics #ere ineffective or not used. Bank
failures led to the loss of illions of dollars in assets. 7utstanding dets ecame heavier- ecause
prices and incomes fell y 29A>9? ut the dets remained at the same dollar amount. 4fter the
panic of 1'2'- and during the first 19 months of 1'39- B44 ;S anks failed. (*n all- '-999 anks
failed during the 1'39s). By 1'33- depositors had lost C149 illion in deposits.
Bank failures
sno#alled as
desperate ankers
called in loans #hich
the orro#ers did not
have time or money to
repay. :ith future
profits looking poor-
capital investment and
construction slo#ed or
completely ceased. *n
the face of ad loans
4
and #orsening future prospects- the surviving anks ecame even more conservative in their
lending. Banks uilt up their capital reserves and made fe#er loans- #hich intensified deflationary
pressures. 4 vicious cycle developed and the do#n#ard spiral accelerated. $his kind of self!
aggravating process may have turned a 1'39 recession into a 1'33 great depression.
1!2! &e%eral Reser'e an% (one) sppl)
,onetarists- including ,ilton Friedman and current Federal Reserve System chairman Ben
Bernanke- argue that the %reat &epression #as caused y monetary contraction- the
conse.uence of poor policymaking y the 4merican Federal Reserve System and continuous
crisis in the anking system. *n this vie#- the Federal Reserve- y not acting- allo#ed the money
supply as measured y the ,2 to shrink y one!third from 1'2' to 1'33. Friedman argued that
the do#n#ard turn in the economy- starting #ith the stock market crash- #ould have een +ust
another recession. $he prolem #as that some large- pulic ank failures- particularly that of the
Bank of the ;nited States- produced panic and #idespread runs on local anks- and that the
Federal Reserve sat idly y #hile anks fell. De claimed that- if the Fed had provided emergency
lending to these key anks- or simply ought government onds on the open market to provide
li.uidity and increase the .uantity of money after the key anks fell- all the rest of the anks
#ould not have fallen after the large ones did- and the money supply #ould not have fallen as far
and as fast as it did. :ith significantly less money to go around- usinessmen could not get ne#
loans and could not even get their old loans rene#ed- forcing many to stop investing. $his
interpretation lames the Federal Reserve for inaction- especially the 2e# Eork ranch.
7ne reason #hy the Federal Reserve did not act to limit the decline of the money supply #as
regulation. 4t that time the amount of credit the Federal Reserve could issue #as limited y la#s
#hich re.uired partial gold acking of that credit. By the late 1'29s the Federal Reserve had
almost hit the limit of allo#ale credit that could e acked y the gold in its possession. $his
credit #as in the form of Federal Reserve demand notes. Since a Fpromise of goldG is not as good
as Fgold in the handG- during the ank panics a portion of those demand notes #ere redeemed for
Federal Reserve gold. Since the Federal Reserve had hit its limit on allo#ale credit- any
reduction in gold in its vaults had to e accompanied y a greater reduction in credit. Several
years into the %reat &epression- the private o#nership of gold #as declared illegal- reducing the
pressure on Federal Reserve gold.
*n a depression ! assets and det oth have to drop. &et is #ritten off as uncollectile (unless
you are a hedge fund representing the privileged class in #hich case the ;S $a3payer keeps you
#hole) and assets are marked do#n.
5
$his is not a recession. $he central ank did not raise interest rates to cause this. *n fact efore
this even egan long term rates dropped elo# short term rates. 4sset prices are dropping fast.
*ndicators like the doule '=1 up days have no validity in periods like this.
The Great Depression happene% in 1929! It too# o'er 10 )ears to cre!
2! *ffects of the %epression+
13 million people ecame unemployed.
*ndustrial production fell y nearly 4>? et#een the years 1'2' and 1'32.
%ross &omestic <roduction(%&<)=
1. 1'39= !H.I?
2. 1'31= !I.4?
3! 1932+ -13,
4. 1'33= !1.3?.
Douse!uilding dropped y H9? et#een the years 1'2' and 1'32.
From the years 1'2' to 1'32- aout >999 anks #ent out of usiness.
3!Reco'er)
$he massive rearmament policies to counter the threat
from 2a/i %ermany helped stimulate the economies of
Europe in 1'3B!3'. By 1'3B- unemployment in Britain had
fallen to 1.> million. $he moili/ation of manpo#er
follo#ing the outreak of #ar in 1'3' finally ended
unemployment.
6
*n the ;nited States- the massive #ar spending douled the %2<- either masking the effects of
the &epression or essentially ending the &epression. Businessmen ignored the mounting national
det and heavy ne# ta3es- redouling their efforts for greater output to take advantage of
generous government contracts. <roductivity soared= most people #orked overtime and gave up
leisure activities to make money after so many hard years. <eople accepted rationing and price
controls for the first time as a #ay of e3pressing their support for the #ar effort. "ost!plus pricing
in munitions contracts guaranteed usinesses a profit no matter ho# many mediocre #orkers
they employed or ho# inefficient the techni.ues they used. $he demand #as for a vast .uantity of
#ar supplies as soon as possile- regardless of cost. Businesses hired every person in sight-
even driving sound trucks up and do#n city streets egging people to apply for +os. 2e# #orkers
#ere needed to replace the 11 million #orking!age men serving in the military. $hese events
magnified the role of the federal government in the national economy. *n 1'2'- federal
e3penditures accounted for only 3? of %2<. "et-een 1933 an% 1939. fe%eral e/pen%itre
triple%- and Roosevelt0s critics charged that he #as turning 4merica into a socialist state.
Do#ever- spending on the 2e# &eal #as far smaller than on the #ar effort.
0! &alse prophets
Pre%ictions (a%e b) econo(ists an% people that tho$ht the) #ne- -hat the) -ere
sa)in$ bt the) -ere pro'en -ron$+
5Stock prices have reached #hat looks like a permanently high plateau5! *rving fisher- 7ct.1B-
1'2'
5$here #ill e no interruption of our permanent prosperity.5! ,yron E. Fores <resident- <ierre
4rro# ,otor "ar "o Jan. 12- 1'2H
5*n most of the cities and to#ns of this country- this :all Street panic #ill have no effect.5! <aul
Block <resident of the lock 2e#spapers 2ovemer 1>- 1'2'
5* have no fear of another comparale decline.5! 4rthur :. Koasy- <resident E.uitale $rust
"ompany 7ct. 2>- 1'2'
5$his crash is not going to have much effect on usiness.5! 4rthur Reynolds- "hairman
"ontinental *llinois Bank of "hicago 7ct. 24- 1'2'
5...despite its severity- #e elieve that the slump in stock prices #ill prove an intermediate
movement...and not the precursor of a usiness depression...5! Darvard Economic Society 2ov.
2- 1'2'
5Buying of sound- seasoned issues no# #ill not e regretted5! E.4. <earce ,arket Ketter 2e#
Eork Derald $riune 7ct. 39- 1'2'
5Financial storm definitely passed.5! Bernard Baruch to :inston "hurchill 2ov. 1>- 1'2'
5... a serious depression seems improale5! Darvard Economic Society 2ov. 19- 1'2'
5For the immediate future at least- the outlook is right.5!*rving Fisher- <h.&. in Economics early
1'39
5$he end of the decline of the Stock ,arket #ill proaly not e long- only a fe# more days at
most.5! *rving Fisher- <roffesor of Economics Eale university 2ov. 14- 1'2'
7
5:hile the crash only took place si3 months ago- * am convinced #e have no# passed through
the #orst5! Deret Doover- <7$;S ,ay 1- 1'39

III The Great Recession (2007-present)
1! "ac#$ron% an% cases
$he financial crisis of 20071present is a crisis triggered y an insolvent ;nited States anking
system. *t has resulted in the collapse of large financial institutions- the ailout of anks y
national governments and do#nturns in stock markets around the #orld. *n many areas- the
housing market has also suffered- resulting in numerous evictions- foreclosures and prolonged
vacancies. *t is considered y many economists to e the #orst financial crisis since the %reat
&epression of the 1'39s. *t contriuted to the failure of key usinesses- declines in consumer
#ealth estimated in the trillions of ;.S. dollars- sustantial financial commitments incurred y
governments- and a significant decline in economic activity. ,any causes have een proposed-
#ith varying #eight assigned y e3perts. Both market!ased and regulatory solutions have een
implemented or are under consideration- #hile significant risks remain for the #orld economy
over the 2919A2911 periods. $his economic period has at times een referred to as 5$he %reat
Recession5.
$he collapse of a gloal housing ule- #hich peaked in the ;.S. in 299I- caused the values of
securities tied to real estate pricing to plummet thereafter- damaging financial institutions gloally.
Luestions regarding ank solvency- declines in credit availaility- and damaged investor
8
confidence had an impact on gloal stock markets- #here securities suffered large losses during
late 299H and early 299'. Economies #orld#ide slo#ed during this period as credit tightened and
international trade declined. "ritics argued that credit rating agencies and investors failed to
accurately price the risk involved #ith mortgage!related financial products- and that governments
did not ad+ust their regulatory practices to address 21st century financial markets. %overnments
and central anks responded #ith unprecedented fiscal stimulus- monetary policy e3pansion- and
institutional ailouts.
1!1! *as) cre%it con%itions
Ko#er interest rates encourage orro#ing. From 2999 to 2993- the Federal Reserve lo#ered the
federal funds rate target from I.>? to 1.9?. $his #as done to soften the effects of the collapse of
the dot!com ule and of the Septemer 2991 terrorist attacks- and to comat the perceived risk
of deflation.
;.S. current account or trade deficit
4dditional do#n#ard pressure on interest rates #as created y the ;S4Ms high and rising current
account (trade) deficit- #hich peaked along #ith the housing ule in 299I. Ben Bernanke
e3plained ho# trade deficits re.uired the ;.S. to orro# money from aroad- #hich id up ond
prices and lo#ered interest rates.
Bernanke e3plained that et#een 1''I and 2994- the ;S4 current account deficit increased y
CI>9 illion- from 1.>? to >.H? of %&<. Financing these deficits re.uired the ;S4 to orro#
large sums from aroad- much of it from countries running trade surpluses- mainly the emerging
economies in 4sia and oil!e3porting nations. $he alance of payments identity re.uires that a
country (such as the ;S4) running a current account deficit also have a capital account
(investment) surplus of the same amount. Dence large and gro#ing amounts of foreign funds
(capital) flo#ed into the ;S4 to finance its imports. $his created demand for various types of
financial assets- raising the prices of those assets #hile lo#ering interest rates. Foreign investors
had these funds to lend- either ecause they had very high personal savings rates (as high as
49? in "hina)- or ecause of high oil prices. Bernanke referred to this as a 5saving glut.5 4 5flood5
of funds (capital or li.uidity) reached the ;S4 financial markets. Foreign governments supplied
funds y purchasing ;S4 $reasury onds and thus avoided much of the direct impact of the
crisis. ;S4 households- on the other hand- used funds orro#ed from foreigners to finance
consumption or to id up the prices of housing and financial assets. Financial institutions invested
foreign funds in mortgage!acked securities.
$he Fed then raised the Fed funds rate significantly et#een July 2994 and July 299I. $his
contriuted to an increase in 1!year and >!year ad+ustale!rate mortgage (4R,) rates- making
9
4R, interest rate resets more e3pensive for homeo#ners. $his may have also contriuted to the
deflating of the housing ule- as asset prices generally move inversely to interest rates and it
ecame riskier to speculate in housing. ;S4 housing and financial assets dramatically declined in
value after the housing ule urst.
1!2! 2b-pri(e len%in$
;.S. suprime lending e3panded dramatically 2994!299I
$he term su!prime refers to the credit .uality of particular orro#ers- #ho have #eakened credit
histories and a greater risk of loan default than prime orro#ers. $he value of ;.S. su!prime
mortgages #as estimated at C1.3 trillion as of ,arch 299B- #ith over B.> million first!lien su!
prime mortgages outstanding.
*n addition to easy credit conditions- there is evidence that oth government and competitive
pressures contriuted to an increase in the amount of su!prime lending during the years
preceding the crisis. ,a+or ;.S. investment anks and government sponsored enterprises like
Fannie ,ae played an important role in the e3pansion of higher!risk lending.
Su!prime mortgages remained elo# 19? of all mortgage originations until 2994- #hen they
spiked to nearly 29? and remained there through the 299>!299I peak of the ;nited States
housing ule. 4 pro3imate event to this increase #as the 4pril 2994 decision y the ;.S.
Securities and E3change "ommission (SE") to rela3 the net capital rule- #hich permitted the
largest five investment anks to dramatically increase their financial leverage and aggressively
e3pand their issuance of mortgage!acked securities. $his applied additional competitive
pressure to Fannie ,ae and Freddie ,ac- #hich further e3panded their riskier lending. Su!prime
mortgage payment delin.uency rates remained in the 19!1>? range from 1''H to 299I- then
egan to increase rapidly- rising to 2>? y early 299H.
Some- like 4merican Enterprise *nstitute fello# <eter J. :allison- elieve the roots of the crisis
can e traced directly to su!prime lending y Fannie ,ae and Freddie ,ac- #hich are
government sponsored entities. 7n 39 Septemer 1'''- The New York Times reported that the
"linton 4dministration pushed for su!prime lending=
Fannie ,ae- the nationMs iggest under#riter of home mortgages- has een under increasing
pressure from the "linton 4dministration to e3pand mortgage loans among lo# and moderate
income people... *n moving- even tentatively- into this ne# area of lending- Fannie ,ae is taking
on significantly more risk- #hich may not pose any difficulties during flush economic times. But
10
the government!susidi/ed corporation may run into troule in an economic do#nturn- prompting
a government rescue similar to that of the savings and loan industry in the 1'H9s.
4 2999 ;nited States &epartment of the $reasury study of lending trends for 39> cities from 1''3
to 1''H sho#ed that C4IB illion of mortgage credit poured out of "R4!covered lenders into lo#
and mid level income orro#ers and neighorhoods. 2evertheless- only 2>? of all su!prime
lending occurred at "R4!covered institutions- and a full >9? of su!prime loans originated at
institutions e3empt from "R4.
7thers have pointed out that there #ere not enough of these loans made to cause a crisis of this
magnitude. *n an article in <ortfolio ,aga/ine- ,ichael Ke#is spoke #ith one trader #ho noted
that 5$here #eren0t enough 4mericans #ith NadO credit taking out Nad loansO to satisfy investors0
appetite for the end product.5 Essentially- investment anks and hedge funds used financial
innovation to synthesi/e more loans using derivatives. 5$hey #ere creating NloansO out of #hole
cloth. 7ne hundred times overP $hat0s #hy the losses are so much greater than the loans.5
Economist <aul Qrugman argued in January 2010 that the simultaneous growth of the
residential and commercial real estate ricing !u!!les undermines the case made !y those
who argue that Fannie ,ae" Freddie ,ac" #$% or redatory lending were rimary causes
of the crisis& 'n other words" !u!!les in !oth mar(ets de)eloed e)en though only the
residential mar(et was affected !y these otential causes&
2! *ffects of the recession
> 999 999 people ecame unemployed allready.
%&<=
1. 299B= 2->?
2. 299H= !1-H?
3. 299'= !1-I3?
4. 2919= 2ot enough information. $he %&< might seem to rise ut this does not prove
anything. 4 ne# collapse of the economy might happen at any time. $hat0s #hy #e never
kno# #here #e are on the curve of the economical evolution. :e can compare the
current facts #ith the past ones ut #e #ill never kno# #eather a slight rise or a sudden
fall happens.
11
From 299B almost 23H anks failed.
3! Reco'er)
3!1 *(er$enc) an% short-ter( responses
$he ;.S. Federal Reserve and central anks around the #orld have taken steps to e3pand
money supplies to avoid the risk of a deflationary spiral- in #hich lo#er #ages and higher
unemployment lead to a self!reinforcing decline in gloal consumption. *n addition- governments
have enacted large fiscal stimulus packages- y orro#ing and spending to offset the reduction in
private sector demand caused y the crisis. $he ;.S. e3ecuted t#o stimulus packages- totaling
nearly C1 trillion during 299H and 299'.
$his credit free/e rought the gloal financial system to the rink of collapse. $he response of the
;.S. Federal Reserve- the European "entral Bank- and other central anks #as immediate and
dramatic. &uring the last .uarter of 299H- these central anks purchased ;SC2.> trillion of
government det and trouled private assets from anks. $his #as the largest li.uidity in+ection
into the credit market- and the largest monetary policy action- in #orld history. $he governments
of European nations and the ;S4 also raised the capital of their national anking systems y
C1.> trillion- y purchasing ne#ly issued preferred stock in their ma+or anks.
%overnments have also ailed out a variety of firms as discussed aove- incurring large financial
oligations. $o date- various ;.S. government agencies have committed or spent trillions of
dollars in loans- asset purchases- guarantees- and direct spending. For a summary of ;.S.
government financial commitments and investments related to the crisis- see "22 ! Bailout
Scorecard.
3!2 Re$lator) proposals an% lon$-ter( responses
12
Further information= Regulatory responses to the su!prime crisis and Su!prime mortgage crisis
solutions deate
;nited States <resident Barack 7ama and key advisers introduced a series of regulatory
proposals in June 299'. $he proposals address consumer protection- e3ecutive pay- ank
financial cushions or capital re.uirements- e3panded regulation of the shado# anking system
and derivatives- and enhanced authority for the Federal Reserve to safely #ind!do#n
systemically important institutions- among others. *n January 2919- 7ama proposed additional
regulations limiting the aility of anks to engage in proprietary trading. $he proposals #ere
dued 5$he 1olcker Rule5- in recognition of <aul 1olcker- #ho has pulicly argued for the
proposed changes.
4 variety of regulatory changes have een proposed y economists- politicians- +ournalists- and
usiness leaders to minimi/e the impact of the current crisis and prevent recurrence. Do#ever- as
of 2ovemer 299'- many of the proposed solutions have not yet een implemented. $hese
include=
Ben Bernanke= Estalish resolution procedures for closing trouled financial institutions in
the shado# anking system- such as investment anks and hedge funds.
<aul Qrugman= Regulate institutions that 5act like anks5 similarly to anks.
:arren Buffett= Re.uire minimum do#n payments for home mortgages of at least 19?
and income verification.
1olcker Rule ! (in ;S) ! Endorsed y <resident Barack 7ama on January 21- 2919. 4t
its heart- it is a proposal y ;S economist <aul 1olcker to restrict anks from making
speculative investments that do not enefit their customers. 1olcker has argued that such
speculative activity played a key role in the financial crisis of 299BA2919.
0! &alse prophets
Pre%ictions (a%e b) econo(ists an% people that tho$ht the) #ne- -hat the) -ere
sa)in$ bt the) -ere pro'en -ron$+
5Dome sales are coming do#n from the mountain peak- ut they #ill level out at a high plateau...a
plateau that is higher than previous peaks in the housing cycle.5! &avid Kereah- "hief Economist-
2ational 4ssociation of Realtors &ec. 29- 299>
5*tRs impossile for prices to go do#n this year5! %arry :atts. Spokesman 7range "ountry
4ssociation of Realthors Fe. 13. 299I
5$here is no national housing market- so there can0t e a national house!price ule.5! ,ichael
Eounglood- ,anaging &irector Friedman Billins Ramsey S "o ,ay 1>- 299I
5* donRt #orry aout ne# home sales5! James %lassman- Economist J< ,organ "ase Fe. 2B-
2993 .... yet
13
5:e may see a lip up in foreclosures and delin.uencies.5! Keslie 4ppleton! Eoung- "hief
Economist "alifornia 4ssociation of Realtors &ec. 1>- 299>
5:e0re no# in the Mmiddle inningsM of the current economic e3pansion- and the ne3t economic
recession is not yet in sight.5! &avid Seiders- "hief Economist 2ational 4ssociation of Dome
Builders Jan. 299I
5* think investors #ill have a good reason to come out here and uy again.5! Jeromith Sutton 24R
*nvestment 4disor 299I
5$here is no ule to urst5! Jim Folkman- 1ice <resident Dome Builders 4ssociation of "entral
2e# ,e3ico Sep. 23- 299>
5$he idea that #e0re going to see a collapse in the housing market seems to me improale5!
John Sno#- Secretary of the $resury Sep. 29- 299>
5Dousing activity #ill remain healthy for some time to come.5! &avid leareah- "hief Economist
2ational 4ssociation of Realthors 7ct. 2H- 299>
5*0d say this is another very important signal that the economic soft patch #e #ere all #orried
aout is pretty much confined to ,arch5! &avid Seiders- "hief Economist 2ational 4ssociation of
Dome Builders ,ay 1B- 299>
5*0m calling it a soft landing5! Keslie 4ppleton! Eoung- "hief Economist "alifornia 4ssociation of
Realtors &ec.I- 299>
...5*0m sorry * have ever made that comment.5! Keslie 4ppleton! Eoung- "hief Economist
"alifornia 4ssociation of Realtors July 21- 299I
5Dousing is still the est investment- #ithout .uestion.5! Stan Sieron- <resident *llinois 4ssociation
of Relaltors July 2'- 299I.
IV! Personal contribtion
3o(parison bet-een The Great Depression of 1929-
1933 an% The Great Recession(2007-present)
4s the economy ecomes #orse and #orse- many predict that unemployment #ill continue to
rise- stocks #ill continue to fall- and more and more people #ill lose their homes. Even <resident
7ama has made this comparison stating= 5:e are going through the #orst economic crisis since
the %reat &epression.5 :hen someone #ith as much po#er as 7ama puts concepts such as
that into ;SRs peopleRs heads- they are going to #orry and e3pect the #orst.
4lthough people in ;S are seeing similarities in todayMs economy and the %reat &epression-
#hich started in 1'2'- several say they #ill not come close to a life as harsh as those endured
almost eighty years ago. 4s consumers are spending less- companies are reacting y laying off
employees as they deem necessary. 4s ;S unemployment rate has increased- they have
managed to at least stay in the single digits. &uring the %reat &epression the rate rose to 2>?
and stayed aove 29? for four years. $his #ould take several years to occur again- and in that
time #e #ill most likely e seeing a etter economy. 7amaMs CBHB illion economic stimulus
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plan is intended to help this situation and create millions of +os. $his alone should decrease the
unemployment rate in the upcoming months.
Banks are in a much greater standing than they #ere ack in the 1'39Ms. $housands of anks
shut do#n during the %reat &epression #hereas only a handful has shut their doors this year.
&epositorMs assets have much more protection these days as #ell. $he F&*" has increased the
amount of insurance it places on each depositor at each institution from C199-999 to C2>9-999.
4lthough this is a temporary change- it #ill cause people to have more confidence in their anks
ecause if for some reason anks collapse- their money is still safe. $he government in this era
#ill step in and offer help to anks on the verge of failing. *n 7ctoer- "ongress approved CB99
illion to ail out the nationMs anks. &uring the %reat &epression- if your ank collapsed your
savings #ere completely gone. $his has tremendously changed for the etter.
299H #as one of the #orst years for stocks as the SS< >99 fell more than 49?. Stocks are do#n
and it is a very high risk for some to e investing money they #ill soon need to survive. $he
Federal Reserve has cut interest rates and not too long ago moved the federal funds rate to the
lo#est in history! et#een 9 and 2>?.
&uring the %reat &epression- government officials #ere not as proactive as they are in todayMs
#orld. <resident Derert Doover didnMt consider the stock market crash of 1'2' to e dangerous
and elieved the prolem #ould correct itself. $oday- government officials are ready to ecome
more involved in issues such as these in hopes to improve the economy.
*n conclusion- * hardly foresee read lines or soup kitchens in ;S society today. &uring the %reat
&epression people could not even afford to feed their families and #ould have no choice ut to
#ait in long lines for food. $hese #ere not +ust lo#er class citi/ens ut middle and some upper
class citi/ens as #ell. 4lmost everyone #as going through hard times. Even though current food
prices have gone up- this hasnMt stopped everyone from uying food and even lu3ury items.
Biliography=
1. htt*++en&wi(iedia&org+wi(i+,inancial-crisis-of-2007.2010
2. htt*++www&)o/eu&org+inde/&h012node+3421
3. htt*++in)estmentwatch!log&com+us319293great3deression3)s320083financial3
housing3credit3crisis+
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