... Task for Assignment II: Compare and contrast 1929 – 39 Great Depression and current global economic crisis with respect to causes and responses and actions of monetary authorities to this crisis. Introduction “…In the old days, we used to suffer nearly periodic economic crises, the sudden onset of which was called a "panic", and the lingering trough period after the panic was called "depression". The most famous depression in modern times, of course, was the one that began in a typical financial panic in 1929 and lasted until the advent of World War II. After the disaster of 1929, economists and politicians resolved that this must never happen again. The easiest way of succeeding at this resolve was, simply to define "depressions" out of existence. From that point on, America was to suffer no further depressions. For when the next sharp depression came along, in 1937-38, the economists simply refused to use the dread name, and came up with a new, much softer-sounding word: "recession". From that point on, we have been through quite a few recessions, but not a single depression. But pretty soon the word "recession" also became too harsh for the delicate sensibilities of the American public. It now seems that we had our last recession in 1957-58. For since then, we have only had "downturns", or, even better, "slowdowns", or "sidewise movements". So be of good cheer; from now on, depressions and even recessions have been outlawed by the semantic fiat of...
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...The Great Depression and the recent Stream of Crisis A Comparative Study This Document is aimed at studying and comparing the great depression of the 1930s with the current crisis from United States’ Perspective 2012 GROUP 6 12/8/2012 SCHOOL OF BUSINESS MANAGEMENT NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES, Mumbai MBA 1st YEAR SUBMITTED TO DR. Chandrima Sikdar Table of Contents Introduction: 4 The Great Depression: From Herbert Hoover to FDR 5 Reasons behind the great depression: 7 Stock Market Crash of 1929 7 Bank Failures 7 Reduction in Purchasing Across the Board 7 American Economic Policy with Europe 7 Drought Conditions 7 Keynesian Solution to the great depression: 8 The recovery 9 Comparison of the great depression with the current stream of crisis: 11 The reaction of Government: 11 Collapse of share prices vs. collapse of asset price: 11 Unemployment: Different rates but similar outcomes: 11 International trade: Is it a real differentiator: 11 References: 13 Introduction: Recessions and business cycles are thought to be a normal part of living in a world of inexact balances between supply and demand. The current economic stream has given the Americans a déjà-vu of The Great depression, which lasted a decade (1929-1939). Though it is evident that there are similarities between the two scenarios, there are enough clues which indicate that there is difference in terms...
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...The great depression was a very hard situation for many. The Great Depression lasted nearly a decay. Started 1929 and ended 1939, can you believe that? This was the deepest and longest- lasting economic downturn in the history of the Western industrialized World. In the United States, the great depression began shortly after the stock market had crashed down in October 1929, which sent many people to panic and wipe out millions of investors. So many people have asked, “How does the current Economic Recession compare to the great depression” well here are some answers. The great depression saw the Federal Reserve do little to ‘save’ their policy actions were limited by a currency backed by precious metal. They say fed knew that money needed...
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... Deregulation is a reduction of government involvement and control within an industry. Did this deregulation lead to the 2008 financial crisis? This is a hot button topic that is highly debated and causes a great deal of controversy. The financial crisis of 2008, known as the Great Recession, impacted the entire country and practically every individual citizen. Many politicians, such as Speaker of the House Nancy Pelosi, look for an easy blame or a scapegoat, for example, the deregulation by the Bush Administration. Pelosi has been quoted saying " the Bush Administration's eight long years of failed deregulation policies have resulted in our nation's largest bailout ever, leaving the American taxpayers on the hook potentially for billions of dollars" (Gattuso). The issue with that statement is that the economic deregulation she speaks of did not take place during the Bush Administration, but many years prior and the laws of that time are not controversial in today’s economic situation. Rather more recent regulatory laws are to blame for the financial crisis of 2008. Why did we Regulate in the First Place? The Great Depression is unopposed when it comes to economic downfalls in the United States. The financial hardships that took place during the 1930s rocked this country to its core. But what caused this large scale economic collapse? The Great Depression produced a sweeping misinterpretation that market economies are intrinsically unstable and are in need of maintenance ...
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...GLOBAL ECONOMIC DEVELOPMENTS Leticia Scheinkman Final Assignment 1.The first age of globalization came to an abrupt and painful end with the economic and financial crisis that engulfed the world starting in 1929. Is globalization again at risk as a result of our current global economic and financial crisis? What similarities between the two episodes suggest that globalization is again at risk? What differences suggest that it is not? What is your evaluation of the risks, at the moment, on balance? In Addition, READ the attached article: G20 Process- from the economist. First of all it is important to understand the socio-economic, politic and geographic situation that both 1929 and 2008 crises were based. The great depression which originated in 1929 in US and spread world over by 1930’s was characterized by barren business and huge unemployment. The main cause of this depression which took all the nations towards financial crises was crashing of the stock markets in 1929. Thousands of investors lost their money in stock markets, leading to a longest recession which comprised huge layoffs, unemployment , wiping out of business activities and which left millions of people depending on government or charity for food. Both episodes were preceded by rapid credit expansion and financial innovation that led to high leverage. However, while the 1920s credit boom was largely US-specific, the 2004-07 boom was global. With much higher levels of real and financial integration than...
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...The Great Depression Thomas Clay Forrest Economics 510 Professor Don Waldron February 6, 2011, 2011 The Great Depression The Great Depression was the deepest, longest and most widespread economic calamity of the twentieth century, and is the most common standard of how far things in the world’s economy can decline. Beginning with the First New Deal, which put into effect a host of relief and recovery measures designed to improve economic conditions and stimulate recovery, myriad other steps were taken to prevent another catastrophe of this magnitude from ever occurring again. Are these measure enough, though, and could the world ever experience another Great Depression? How do the events of the Great Depression era compare to recent economic downturns, including the current deep recession the world is experiencing? This essay will provide answers to these questions and provide an analysis of the causes and events that led to the Great Depression. It will also present the reasons why another Great Depression is unlikely to occur again. Debates vary as to the causes of the Great Depression, with many well-respected economists offering differing opinions to what they believe led to the historic event. British economist John Maynard Keynes felt that the Depression was driven by demand, and in his book the General Theory of Employment Interest and Money, Keynes argued that lower aggregate expenditures in the economy contributed to an enormous...
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...Can innovation solve the economic crisis? Loh Hu 2/18/2013 In this paper, I examine how the theory of technological innovation waves could contribute to solving the ongoing economic crisis. Primarily, my stance remains that innovation in itself is insufficient to solve the economic crisis unless there exists a matching techno-economic paradigm where national, supranational and global efforts are coordinated for a full deployment of technological revolution. Can innovation solve the economic crisis? Background There has been a wide international debate on the causes and possible solutions to the economic crisis that emerged in 2007 – 2008 (Ranga and Etzkowitz 2012). The economic crisis sweeps across the global financial system rapidly and furiously as markets are globally integrated (Gore 2010). Hence, the responses to the global economic crisis are not only enclosed within a nation’s or a coalition government’s approach. Rather, a global coordinated response is warranted as well. Economic stimulus packages addressing short-term and long-term problems have been adopted in most countries as well as the European Commission (Ranga and Etzkowitz 2012). Internationally, the United States of America and European Union have recently been discussing on a free-trade agreement to remove trading barriers between the two important economic powers and boost the economies (BBC News Business 2013). Globally, the G-20 group of major economies have considered proposals on international...
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...U M B E R 141 ECONOMIC POLICY The Global Financial Crisis: Comparisons with the Great Depression and Scenarios for Recovery Milan Brahmbhatt (PRMVP) and Luiz Pereira Da Silva (DECVP) A recent paper by Eichengreen and O’Rourke on “A Tale of Two Depressions” (publicized by Martin Wolf in the Financial Times) has highlighted some close correspondences between economic performance during the present world recession and that during the early months of the Great Depression that began in late 1929.1 World industrial production from April 2008 to April 2009 fell as rapidly as during the first year of the Great Depression, while stock market prices and world trade volumes have fallen more rapidly than in the comparable period. These comparisons lead Eichengreen and O’Rourke to draw the alarming conclusion that “[I]t’s a Depression alright.” They note, however, that fiscal and monetary policies are likely to be much more supportive of economic activity in the next 1–2 years than they were during the first few years of the Great Depression. The first part of this note outlines some other important structural differences between the world economy today and in the 1930s that are likely to affect how the present recession plays out relative to the Great Depression. The second part of the note discusses possible recovery paths out of the current crisis. 1. Comparing the Great Depression with the Present Global Financial Crisis Larger role of faster-growing developing countries in the...
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...The Great Recession and the Great Depression John Maynard Keynes wrote in the depths of the Great Depression that, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”1 This acute observation is applicable to our current Great Recession as well. In fact, the newly discredited ideas are not too different from the old, suggesting that Keynes may have overestimated the ability of people to learn from their mistakes. I discuss the parallels between these two watersheds in recent economic history in three steps. The first and most important step is the causes of the crises and their relation to economic theory. The second step is the spread of the crises as they affected the whole world. I close with the final step, recovery—at least as far as we can see it at this point. Marx said famously that history repeats itself, “the first time as tragedy, the second as farce.”2 I argue that this observation also fits our current condition. Both of these dramatic and costly economic crises came from the interaction of economic imbalances in the world economy and the ruling ideology of financial decision makers who confronted these imbalances. The first imbalance came from the First World War. This paroxysm of violence brought the long economic expansion of the nineteenth century to a sudden end. Britain, the workshop of the prewar world, was exhausted by the struggle. America, the rising...
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...Topic: The Great Depression, continued Read: In Fed we Trust, chapters 1-4 1. Define the term gold standard. Should we return to it? The gold specie standard arose from the widespread acceptance of gold as currency. No, The gold standard limited central banks from printing money when economies needed central banks to print money, and limited governments from running deficits when economies needed governments to run deficits. It was a devilish device for turning recessions into depressions. The answer is that some people aren't worried about depressions. Some people are worried about inflation. 2. Who was J. Pierpont Morgan? What was his role in stopping the Panic of 1907? John Pierpont "J. P." Morgan (April 17, 1837 – March 31, 1913) was an American financier, banker, philanthropist and art collector who dominated corporate finance and industrial consolidation during his time. In 1892 Morgan arranged the merger of Edison General Electric and Thomson-Houston Electric Company to form General Electric. After financing the creation of the Federal Steel Company, he merged in 1901 with the Carnegie Steel Company and several other steel and iron businesses, including Consolidated Steel and Wire Company owned by William Edenborn, to form the United States Steel Corporation. - The Panic of 1907 was a financial crisis that almost crippled the American economy. Major New York banks were on the verge of bankruptcy and there was no mechanism...
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...The Role of Unethical Decisions The Great Recession was caused by a massive movement of the whole banking industry disregarding ethical behavior and leaving the philosophy of sound investing strategies for a philosophy of profits. In evaluating the role of unethical decisions in causing the financial crisis, we will start by defining ethics. Ethics can be defined as rules of behavior based on ideas about what is morally good and bad. In every profession, each person has to abide by codes of ethical standards for that profession. So with regards to the financial crisis individuals acted in an unethical manner which eventually aided in the great recession. In analyzing the sources of the problem in the financial crisis, such as poor risk controls, too much leverage and an almost willful blindness to the bubble-like conditions in the housing market, we can strongly say that ethics did play a major role. Financial firms became unmoored from its ethical base and were free to behave in ways that were in their, top executives, short-term interest without any concern about the longer term impact on the industry’s customers or the broader U.S economy. Integrity and a sense of responsibility to the industry’s customers are at the core of what a financial industry must be all about; otherwise it is just a big Ponzi scheme. The ethical failures in the subprime lending played a major role in the financial as mortgage brokers did not care about the credit worthiness of the borrowers as...
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...publicly traded companies filed for bankruptcy? Why did a house that used to cost $200,000.00 just sell for $40,000.00? Why are foreclosures at the highest rate in US history? Maybe the question to ask is what has caused all of this? There are so many questions to be answered when it comes to the economic conditions in the United States. How did it get into the current condition? What were the signs of slipping into the crisis (economic indicators)? Whose actions were responsible? Was the responsible party also guilty of unethical behavior (big issue) or was it accidental. How long will it take for the economy to get back to being productive? In the past, America has been a very productive, successful country. There have been other recessions and a depression that have affected the U.S. but for some reason this current crisis was started by a completely different chain of events. What was the chain of events that triggered this current catastrophe? There are so many questions that need to be answered for the people of America and this student is now on a mission to give the United States and the world an explanation about the crisis and possible solutions to getting out of the crises. After this catastrophe started in the United States, the rest of the countries in the world suffered the same fate. This is because the...
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...Mitch Abramson GOVT 123-01 Global Financial Crisis A collapse of the US sub-prime mortgage market and the bursting of the housing bubble in 2007 have had a ripple effect on the global economy. Furthermore, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that as things start to unravel, trust in the whole system started to fail. In turn lack of confidence in the economy has led to what is commonly referred to as the “great recession”. The question left to ask is, where do we go from here? The public is looking for an answer from economists to what will happen next. Because of the lack of certainty in the global forecasts, people are starting to lose confidence in the system. For example, in November 2008, the World Bank predicted the growth of the 2009 GDP to be 0.9%, while the International Monetary Fund predicted a 2.2% growth rate. In January 2009, the IMF revised its forecast to a 0.5% growth rate; two months later, the IMF revised its growth rate again by raising its forecast to 1%. Federal Reserve chairman, Ben Bernanke put it plainly in a speech given to the House Budget Committee by saying, “The uncertainty surrounding the outlook is unusually large.” Some economists have resorted to using three letters of the Roman alphabet to represent the future of the GDP growth. Those scenarios are the “U”, the “L”, and the “W” recovery. In a “U” style economy, economic growth will rapidly...
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...recently at George Washington University he outlined how the fed has achieved market stability since the great depression. During the great depression the federal reserve failed to intervene in the financial market, but instead allowed numerous banks to fail; which intern lead to a liquidity crunch. When the markets do not have access to liquidity the economy comes to a screeching halt, such a halt was seen during the 1930s. This was the only time period in American history in which numerous runs on the banks were witnessed. Drawing on the lessons learned during the 1930s numerous pieces of legislation was passed in order to insure such a period of economic depression could never happen again. The legislation passed and lessons learned during the depression were recently tested by our current financial crisis. Even though this crisis had different origins than the depression the results would have been similar. A liquidity shortage arose while at the same time panic became apparent as people started to believe that the banks could not insure their deposits. Through swift and immediate action the fed in connection with the treasury made secret loans to the largest banks totaling trillions of dollars. The moral hazards and questions raised during this time and through these actions have yet to been answered, but one thing was assured; because of this action a financial depression was avoided and the economy has rebounded faster than it would have without this...
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...most other countries have not in the past provided government sponsored deposit insurance, though some have put it in place as part of their response to the credit crisis. Does the unique structure of the U.S. banking system indicate a greater need for such insurance? In 1933, banks in the United States were unsecure and there was widespread fear based on the previous closures. Depositors panicked as banks were experiencing difficulties. What differentiated U.S banks from other banks is that US banks were composed of two main banks: national banks that were following the federal law and regulation and which it could share funds and resources across US, and the State banks that were following the state law and regulations. It was proven after the crisis that local units banks were more vulnerable to the crisis than national banks. Many states restricted branch banks form developing that made some banks riskier and it limited their liquidity. In 1929 crash, customers were unable to pay back their loans that led to a severe liquidity problem as payment of loans and deposits provided most of the cash flow and backing of American banks, which led to bank closures. From another point, the absence of a central bank is another difference between US and Germany or Great Britain. It was surely one reason of the severe crisis that affected US Banks. Due the lack of presence of central banks and absence of a leader that could limit the failures and restore...
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