Repression vs Depression

7/28/2019 Repression vs Depression

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I Rationale

II The Great Depression of 1929-1933

III The Great Recession (2007-present)

IV Personal contribution

I. Rationale

I have chosen to write about this particularly subject because my future plans involve attending the College ofEconomic Science. The first time I studied economics in class it appealed to me and I found it useful as a result of itsstrong impact on society.

Moreover, the current financial crisis created radical changes world wide increasing the difference between thestates more than the Great Depression did in 1929. This is the consequence of the fact that all countries are part ofan international trade network which makes them vulnerable to any sharp fluctuation in the currency of each state.Given the fact that each country needs to import goods in order to satisfy its citizens demand, it is completely

impossible to avoid the slight inflation within its own economy.

Concerning this, I would also add that this generation is one of sacrifice, a generation on which life-or-deathexperiments are being run on - of course, all of this, from an economical point of view.As I mention the word"generation", my perspective easily slips upon the future - will the high level decisions that are taken as we speakimprove my standard of life? Or how about my childrens life? These questions come naturally, as I wonder how cantheir decisions allow me to sustain myself and my family, without any useless and harmful constraints.


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II The Great Depression of 1929-1933

1. Background and causes

As mass production has to be accompanied by mass consumption, massconsumption, in turn, implies a distribution of wealth not of existing wealth,

but of wealth as it is currently produced to provide men with buying powerequal to the amount of goods and services offered by the nations economicmachinery.Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth.This served them as capital accumulations. But by taking purchasing power outof the hands of mass consumers, the savers denied to themselves the kind ofeffective demand for their products that would justify a reinvestment of theircapital accumulations in new plants. In consequence, as in a poker game wherethe chips were concentrated in fewer and fewer hands, the other fellows couldstay in the game only by borrowing. When their credit ran out, the gamestopped.

Bank failures snowballed as desperate bankers called in loans which the borrowers did not have time or moneyto repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In theface of bad loans and worsening future prospects, the surviving banks became even more conservative in theirlending. Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A viciouscycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930recession into a 1933 great depression.

The Great Depression happened in 1929. It took over 10 years to cure.


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2. Effects of the depression:13 million people became unemployed.Industrial production fell by nearly 45% between the years 1929 and 1932.

Gross Domestic Production(GDP):

1. 1930: -8.6%

2. 1931: -6.4%3. 1932: -13%4. 1933: -1.3%.

House-building dropped by 80% between the years 1929 and 1932.From the years 1929 to 1932, about 5000 banks went out of business.

3.Recovery

The massive rearmament policies to counter the threat from NaziGermany helped stimulate the economies of Europe in 1937-39. By 1937,unemployment in Britain had fallen to 1.5 million. The mobilization ofmanpower following the outbreak of war in 1939 finally endedunemployment.

Between 1933 and 1939, federal expenditure tripled, andRoosevelts critics charged that he was turning America into a socialiststate. However, spending on the New Deal was far smaller than on thewar effort.


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III The Great Recession (2007-present)

1. Background and causes

The financial crisis of 2007present is a crisis triggered by an insolvent United States banking system. Ithas resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturnsin stock markets around the world. In many areas, the housing market has also suffered, resulting in numerousevictions, foreclosures and prolonged vacancies. It is considered by many economists to be the worst financial crisissince the Great Depression of the 1930s. It contributed to the failure of key businesses, declines in consumer wealthestimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significantdecline in economic activity. Many causes have been proposed, with varying weight assigned by experts. Both market-based and regulatory solutions have been implemented or are under consideration, while significant risks remain forthe world economy over the 20102011 periods. This economic period has at times been referred to as "The GreatRecession".

Easy credit conditions

Lower interest rates encourage borrowing. From 2000 to 2003, the Federal Reserve lowered the federal fundsrate target from 6.5% to 1.0%. This was done to soften the effects of the collapse of the dot-com bubble and of theSeptember 2001 terrorist attacks, and to combat the perceived risk ofdeflation.

U.S. current account or trade deficit

U.S. subprime lending expanded dramatically 2004-2006
http://en.wikipedia.org/wiki/Solvencyhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Bailouthttp://en.wikipedia.org/wiki/Financial_crisishttp://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Regulationhttp://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/Federal_funds_ratehttp://en.wikipedia.org/wiki/Federal_funds_ratehttp://en.wikipedia.org/wiki/Dot-com_bubblehttp://en.wikipedia.org/wiki/September_11_attackshttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/File:U.S._Home_Ownership_and_Subprime_Origination_Share.pnghttp://en.wikipedia.org/wiki/File:U.S._Trade_Deficit_Dollars_and_%_GDP.pnghttp://en.wikipedia.org/wiki/File:U.S._Home_Ownership_and_Subprime_Origination_Share.pnghttp://en.wikipedia.org/wiki/File:U.S._Trade_Deficit_Dollars_and_%_GDP.pnghttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/September_11_attackshttp://en.wikipedia.org/wiki/Dot-com_bubblehttp://en.wikipedia.org/wiki/Federal_funds_ratehttp://en.wikipedia.org/wiki/Federal_funds_ratehttp://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/Regulationhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Financial_crisishttp://en.wikipedia.org/wiki/Bailouthttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Solvency


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2. Effects of the recession5 000 000 people became unemployed allready.

GDP:

1. 2007: 2,5%2. 2008: -1,8%3.

2009: -1,63%4. 2010: Not enough information. The GDP might seem to rise but this does not prove anything. A new

collapse of the economy might happen at any time. Thats why we never know where we are on the curve of the

economical evolution. We can compare the current facts with the past ones but we will never know weather a slightrise or a sudden fall happens.

From 2007 almost 238 banks failed.

3. Recovery

3.1 Emergency and short-term responses

The U.S. Federal Reserve and central banks around the world have taken steps to expand money supplies toavoid the risk of a deflationary spiral, in which lower wages and higher unemployment lead to a self-reinforcingdecline in global consumption. In addition, governments have enacted large fiscal stimulus packages, by borrowingand spending to offset the reduction in private sector demand caused by the crisis. The U.S. executed two stimuluspackages, totaling nearly $1 trillion during 2008 and 2009.

This credit freeze brought the global financial system to the brink of collapse. The response of the U.S. FederalReserve, the European Central Bank, and other central banks was immediate and dramatic. During the last quarter of2008, these central banks purchased US$2.5 trillion of government debt and troubled private assets from banks. Thiswas the largest liquidity injection into the credit market, and the largest monetary policy action, in world history. Thegovernments of European nations and the USA also raised the capital of their national banking systems by $1.5trillion, by purchasing newly issued preferred stockin their major banks.
http://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/European_Central_Bankhttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/European_Central_Bankhttp://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Federal_Reserve


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IV. Comparison between The Great Depression of 1929-1933and The Great Recession(2007-present)

As the economy becomes worse and worse, many predict that unemployment will continue to rise, stocks willcontinue to fall, and more and more people will lose their homes. Even President Obama has made this comparison

stating: "We are going through the worst economic crisis since the Great Depression." When someone with as muchpower as Obama puts concepts such as that into US`s people`s heads, they are going to worry and expect the worst.

Although people in US are seeing similarities in today's economy and the Great Depression, which started in1929, several say they will not come close to a life as harsh as those endured almost eighty years ago. As consumersare spending less, companies are reacting by laying off employees as they deem necessary. As US unemployment ratehas increased, they have managed to at least stay in the single digits. During the Great Depression the rate rose to25% and stayed above 20% for four years. This would take several years to occur again, and in that time we willmost likely be seeing a better economy. Obama's $787 billion economic stimulus plan is intended to help this situationand create millions of jobs. This alone should decrease the unemployment rate in the upcoming months.

2008 was one of the worst years for stocks as the S&P 500 fell more than 40%. Stocks are down and it is a

very high risk for some to be investing money they will soon need to survive. The Federal Reserve has cut interestrates and not too long ago moved the federal funds rate to the lowest in history- between 0 and 25%.

During the Great Depression, government officials were not as proactive as they are in today's world. PresidentHerbert Hoover didn't consider the stock market crash of 1929 to be dangerous and believed the problem wouldcorrect itself. Today, government officials are ready to become more involved in issues such as these in hopes toimprove the economy.

In conclusion, I hardly foresee bread lines or soup kitchens in US society today. During the Great Depressionpeople could not even afford to feed their families and would have no choice but to wait in long lines for food. Thesewere not just lower class citizens but middle and some upper class citizens as well. Almost everyone was goingthrough hard times. Even though current food prices have gone up, this hasn't stopped everyone from buying food

and even luxury items.

Repression vs Depression

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