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Great Depression of the 1930s and the current status of the United States.
Great depression of the 1930's and current economic status of the U.S.
The research paper compares and contrasts the great depression of the 1930's and the current economic status of the United State of America.
It first of all makes a general overview of each of these two different periods and then focuses on certain specific aspects during these different times which include the causes to the economic recessions witnessed, impacts of the economic recessions and the solutions that were introduced so as to bring the economy to a recovery level or phase and lastly the research paper will conclude the topic.
Great Depression of 1930's
When talking about any topic regarding the American history it would be hard not to mention the 1930's great depression, this is evident by the fact that various authors in those times and even in the present times still devoted their literature works to study and research about this topic. Referred by many studies and researches that have ever been conducted as one of the world's worst economic depression, that can be used as a case study to describe how low world economy can fall.
It's the longest recorded economy depression in the world both in the 20th century and 21st century, the United States of America was the first casualty of the recession when in September 4th of the year 1929, its' stock prices fell to an all time low. Research showed that later on, the depression spread wide across the globe lasting for almost a decade and before the start of the World War II in 1945.
The impacts of the great depression were enormous as it didn't even spare any developed, developing or any under developed country during that time, but its important to note that countries whose economies mainly relied on heavy industries such as mining, crop production and logging were the worst affected by the economic depression unlike those countries who didn't.
In the mid-1930's some countries' economies witnessed the start of economic recovery and end to recession while some economies dragged on in the great depression till beginning of the second World War when they witnessed some economic indictors which signaled the start of economic recovery (Mitchell, pp 462).
Current economic status of the U.S.
The United States of America economy is generally regarded by various renowned economists and authors as the number one World economy, this fact is evident by statistics that recently were released by the World Bank which showed that in the year 2009 the country's gross domestic product was more than 14 trillion USD, about quarter of the total world GDP.
The U.S. economy experienced robust growth after the great depression to a level where it became the largest manufacturer in the world, with almost 20% of the total World's manufacturing output coming out of the U.S. The New York Stock Exchange grew to become the largest stock exchange in the World; further more the country also boasts of having the largest deposits and reserves in terms of gold in the entire world at its' New York Federal Reserve Bank (Embrechts, pp 1-33).
Despite of its' strength and financial background the United States of America's economy witnessed between the period of 2007 to 2010, what is termed by Embrechts (pp 1-33) as the worst economic recession after the great depression of 1930's. The financial melt down which started in the year 2007 up-to-date, has been largely attributed to the banking sector of the country and it exposed the 21st century Americans to nearly what was experienced in the 1930's great depression.
According to Gusmorino Web page, the great depression of 1930's was largely caused by stock market meltdown. Gusmorino studies show that there was high speculation in the stock market in the late 1920's which kept the market at high virtual levels than the actual levels, that lead to the market collapse, while studies conducted by Taylor, (pp 21-54), indicated that the current economic status in the U.S. was largely attributed to the housing industry which had experienced tremendous growth between the periods of 2005 to 2006 that encouraged potential home buyers to take high mortgages with a common belief that they would be able to pay back the loans at lower interest rates. But coming to the year 2007 the industry performed extremely poorly, interest on mortgage loans went up while housing prices declined leading to a sharp fall in stocks and shares tied to the housing industry. The impact was felt widely across the economy but mostly in financial institutions across the country, (http://www.gusmorino.com/pag3/greatdepression/index.html).
The other similar cause in the 1930's great depression and the current economic status in the U.S. is failure in the banking system. In the period of 1930's it is recorded that nearly nine thousand banks closed shop, mainly because of huge amounts of bad debts written off caused by collapse of the stock market, lack of uptake and creation of new loans. At the time depositors lost all their savings because there saving were not insured which made the situation even worse for them. Critics argue that the banking system is to blame for the current economic status in the U.S., citing that they lent out funds for short-term but the funds were invested in longer term and riskier investments, secondly most banks had overburden their clients with huge debts while they themselves were not liquid or solvent enough leading to banks insolvency and fall in credit availability which are to blame for the current situation.
The great depression was also caused by the American economic policy with Europe which was established to safe guard American companies' market interest, to do so the policy recommended import tariff (Smoot-Hawley Tariff) which raised taxes for goods entering the U.S. market from Europe. This policy lead to fall of trade between the U.S. And Europe plus economic retaliation by other countries all this worsened and prolonged the great depression in the 1930's (Mitchell, pp 462). Such policy was never formulated and didn't cause the 2007 to 2010 financial crisis witnessed in the U.S., but poor regulatory frame work and fraudulent practices by underwriters were also among the causes.
The poor climatic conditions in 1930's at Mississippi Valley thou never directly contributed to the great depression but it also contributed indirectly as it made farmers unable to pay taxes and bank loans forcing some of them to sell their farms at lower prices. Climatic conditions in the U.S. never directly or indirectly contributed to the financial crisis in the period of 2007 to 2010.
As noted earlier countries like the U.S. which relied mostly on the manufacturing sector suffered greatly during the great depression. The income levels of citizens fell leading to reduced living standards, the tax collection by the government also reduced thus the country was unable to make any economic development, profit made by businesses reduced as prices of goods and services also declined. The same impact was also felt during the current economic status in the U.S. with unemployment level rising to 10.1% in October 2009, while during the great depression of 1930's it went as high as 25% in 1933 (Mitchell, pp 462).
Many Banks closed down during the great depression in the U.S., the current economic status in the U.S. hasn't reached to that point but the International Monetary Fund report show that U.S. banks made a loss of more than one trillion dollars during the financial crisis in terms of assets and bad debts which written off. Similarity to these two periods of financial meltdown in the U.S. is the high number of loan defaulters and loss of home ownership (Embrechts pp 1-33).
Referring to researches and studies conducted by various others among them
Mitchell, (pp 462) show that the great depression of the 1930's had political consequences to political administration at the time which contributed to successful election of President Roosevelt after the his predecessor President Hoover failed with various attempts to salvage the economic recession including the Smoot-Hawley Tariff Act and Federal Home Bank Loan Act.
President Roosevelt came into power in 1933, launched the New Deal programs which was aimed at increasing government expenditure budget and bringing about institutional reforms. In the same year Roosevelt government implemented the Securities Act which aimed at regulating the stock market, the Glass-Steagall Act which provided for the insurance of deposits in the bank. The President Obama administration also similarly acted as President Roosevelt administration by bringing in new regulatory proposals all aimed at reducing the current economic financial crisis and averting such a crisis in the future. In the year 2009, Obama administration introduced policies that touched on issues such as companies executives' remuneration package, banking institutions financial safeguards and in January 2010 policies were introduced which aimed at preventing banks from engaging in proprietary trading activities.
Unlike during the great depression of the 1930's the Obama…[continue]
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