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 of Economic Science. The first time I studied economics in class it appealed to me and I found it useful as a result of its strong impact on society. Moreover, the current financial crisis created radical changes world wide increasing the difference between the states more than the Great Depression did in 1929. This is the consequence of the fact that all countries are part of an 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-death experiments 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 speak improve my standard of life? Or how about my childrens life? These questions come naturally, as I wonder how can their decisions allow me to sustain myself and my family, without any useless and harmful constraints.

II The Great Depression of 1929-1933

1. Background and causes
As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth not of existing wealth, but of wealth as it is currently produced to provide men with buying power equal to the amount of goods and services offered by the nations economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 192930 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

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

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

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 From the years 1929 to 1932, about 5000 banks went out of business.

the

years

1929

and

1932.

3.Recovery
The massive rearmament policies to counter the threat from Nazi Germany helped stimulate the economies of Europe in 1937-39. By 1937, unemployment in Britain had fallen to 1.5 million. The mobilization of manpower following the outbreak of war in 1939 finally ended unemployment. Between 1933 and 1939, federal expenditure tripled , and Roosevelts critics charged that he was turning America into a socialist state. However, spending on the New Deal was far smaller than on the war effort.

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. It has resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In many areas, the housing market has also suffered, resulting in numerous evictions, foreclosures and prolonged vacancies. It is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity. Many causes have been proposed, with varying weight assigned by experts. Both marketbased and regulatory solutions have been implemented or are under consideration, while significant risks remain for the world economy over the 20102011 periods. This economic period has at times been referred to as "The Great Recession".

Easy credit conditions

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

U.S. current account or trade deficit

U.S. subprime lending expanded dramatically 2004-2006

2. Effects of the recession

5 000 000 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 slight rise 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 avoid the risk of a deflationary spiral, in which lower wages decline in global consumption. In addition, governments have and spending to offset the reduction in private sector demand packages, totaling nearly $1 trillion during 2008 and 2009. world have taken steps to expand money supplies to and higher unemployment lead to a self-reinforcing enacted large fiscal stimulus packages, by borrowing caused by the crisis. The U.S. executed two stimulus

This credit freeze brought the global financial system to the brink of collapse. The response of the U.S. Federal Reserve, the European Central Bank, and other central banks was immediate and dramatic. During the last quarter of 2008, these central banks purchased US$2.5 trillion of government debt and troubled private assets from banks. This was the largest liquidity injection into the credit market, and the largest monetary policy action, in world history. The governments of European nations and the USA also raised the capital of their national banking systems by $1.5 trillion, by purchasing newly issued preferred stock in their major banks.

IV. Comparison between The Great Depression of 1929-1933 and The Great Recession(2007-present)
As the economy becomes worse and worse, many predict that unemployment will continue to rise, stocks will continue 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 much power 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 in 1929, several say they will not come close to a life as harsh as those endured almost eighty years ago. As consumers are spending less, companies are reacting by laying off employees as they deem necessary. As US unemployment rate has increased, they have managed to at least stay in the single digits. During the Great Depression the rate rose to 25% and stayed above 20% for four years. This would take several years to occur again, and in that time we will most likely be seeing a better economy. Obama's $787 billion economic stimulus plan is intended to help this situation and 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 interest rates 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. President Herbert Hoover didn't consider the stock market crash of 1929 to be dangerous and believed the problem would correct itself. Today, government officials are ready to become more involved in issues such as these in hopes to improve the economy. In conclusion, I hardly foresee bread lines or soup kitchens in US society today. During the Great Depression people could not even afford to feed their families and would have no choice but to wait in long lines for food. These were not just lower class citizens but middle and some upper class citizens as well. Almost everyone was going through hard times. Even though current food prices have gone up, this hasn't stopped everyone from buying food and even luxury items.