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The Great Depression VS. Late 2000’s Recession

The Great Depression VS. Late 2000’s Recession. By Xiangyu Shen. Content. Introduction Comparison Conclusion. The Great Depression Background Causes Effects Solution/Government Reaction. The Great Recession Background Causes Effects Solution/Government Reaction.

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The Great Depression VS. Late 2000’s Recession

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  1. The Great Depression VS.Late 2000’s Recession By Xiangyu Shen 5th Grade GT

  2. Content • Introduction • Comparison • Conclusion • The Great Depression • Background • Causes • Effects • Solution/Government Reaction • The Great Recession • Background • Causes • Effects • Solution/Government Reaction

  3. The Great Depression • A severe worldwide economic depression • The timing: depended on the country, but in most countries it started in around 1929 and lasted until the late 1930s or early 1940s.  • The longest, most widespread, and deepest depression of the 20th century. In the 21st century, the Great Depression is often used as an example of how far the world's economy can decline. 

  4. The depression started in the U.S., starting with the fall in stock prices( the direct opposite of an inflation) that began around September 4, 1929 and became worldwide news with the stock market crash of October 29, 1929 (Black Tuesday). From there, it quickly spread to almost every country in the world.

  5. The Late 2000’s Recession • Sometimes referred to as the Great Recession, the Lesser Depression, or the Long Recession,  it was a severe global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008.

  6. The Great Recession has affected the entire world economy, with higher detriment in some countries than others.

  7. It is a major global recession characterized by various systemic imbalances and was sparked by the outbreak of the late-2000s financial crisis. 

  8. The Great Depression

  9. Background • After World War I, the European economy was in tatters. France and Britain demanded reparations from the defeated Germany, leading to  spectacular collapse in the value of the Mark. • Meanwhile, the U.S. emerged as a global leader and went on to the “Roaring Twenties.” At first the rise in stock prices was largely justified by output and profits - it simply reflected the growing value of American businesses. But increasingly the "bull market" became a speculative boom, in which people were prepared to pay ever-higher prices for stocks regardless of the actual value of the companies' assets of products. "It was a gambler's paradise, in which every bet seemed a sure-fire winner, as stock prices rose and rose. "

  10. Background • More and more ordinary people put their life savings into stock market. Meanwhile, Wall Street insiders artificially boosted the price of stocks in worthless companies in which they had a large stake.  • US investigators withdrew money from abroad to put it into the US stock market boom. 

  11. Background • In the USA, farm prices were falling and the output of some industries was weakening.  • Prohibition leaded to speakeasies and law flouting. Respect for law enforcement dwindled as many officials and officers were bribed to overlook gang activities.

  12. Causes Although there were many causes of the Great Depression, some of the main causes were: • Misuse of credit • Unsupervised Investing • Speculating • Short-Term Investments •  Careless Loans • Limited Tolerance of Law

  13. Effects   Effects of depression in the U.S.: • Unemployment rate increased significantly: • 13 million people became unemployed. • In 1932, 34 million people belonged to families with no regular full-time wage earner. • In 1933, 25% of all workers and 37% of all nonfarm workers were unemployed. • The number of poor people increased: • Family income reduced by 40% between 1929~1932 • Many people lost their homes or farms. • Over 60% of Americans were categorized as poor by the federal government in 1933. • Children were malnourished • Many people became ill with diseases such as tuberculosis.

  14. Effects • Industrial production fell by nearly 45% between 1929 and 1932. • Homebuilding dropped by 80% between the years 1929 and 1932. • Between 1929 and 1933, U.S. GDP fell around 30%, and the stock market lost almost 90% of its value. • Corporate profits had dropped from $10 billion in 1929 to $1 billion in 1932. • Bank failure: • From 1929 to 1932, about 5,000 banks went out of business. • By 1933, 11,000 of the US' 25,000 banks had failed. • Nine million savings accounts had been wiped out between 1930 and 1933. • Immigration dropped: • In the last prosperous year (1929), there were 279,678 immigrants recorded, but in 1933 only 23,068 came to the U.S. • In the early 1930s, more people emigrated from the United States than immigrated to it.

  15. Solution/Government Reaction The First New Deal:1. Roosevelt orders 4-day national bank holiday. 2. He creates the FDIC and passes the Glass-Steagall Banking Act.3. The Truth in Securities Act gets passed.4. He creates jobs: (1) Civilian Conservation Corps (CCC)                                (2) Civil Works Administration (CWA)                                (3) Public Works Administration (PWA)                                (4) Works Progress Administration (WPA)5. America goes off the gold standard.6. The Federal Emergency Relief Act (FERA) gets passed.7. The Emergency Farm Mortgage gets passed.8. The Agricultural Adjustment Act (AAA) is passed.9. The Tennessee Valley Authority (TVA) is formed.10. The Home Owner's Loan Corporation (HOLC) Act is passed.

  16. Solution/Government Reaction 11. The National Industrial Recovery Act (NIRA) is formed and sets up the National Recovery Administration (NRA).12. The Social Security Act is passed.13. The Banking Act of 1935 is passed.14. The National Youth Administration is formed.    Many large companies had complaints about the New Deal Programs and went to court. In 1935 and 1936 many of the New Deal programs were declared unconstitutional and struck down by the Supreme Court. After his reelection Roosevelt proposed a bill to add a new justice for every old one over 70 with a limit of 15. It was surrounded by a firestorm of controversy and after that (ironically) the Supreme court declared less of them unconstitutional.The Second New Deal:1. A second AAA2. The Surplus Marketing Administration3. The Food Stamp Plan4. The Fair Labor Standards Act

  17. The Late 2000’s Recession

  18. Background Commodity boom: The decade of the 2000s saw a global explosion in prices, focused especially in commodities and housing, marking an end to the commodities recession of 1980–2000. In 2008, the prices of many commodities, notably oil and food, rose so high as to cause genuine economic damage, threatening stagflation and a reversal of globalization.

  19. Housing bubble:    By 2007, real estate bubbles were still under way in many parts of the world, especially in the United States, United Kingdom, etc. U.S. Federal Reserve Chairman Alan Greenspan said in mid-2005 that "at a minimum, there's a little 'froth' (in the U.S. housing market) ... it's hard not to see that there are a lot of local bubbles". The Economist magazine, writing at the same time, went further, saying "the worldwide rise in house prices is the biggest bubble in history".

  20. Inflation: In February 2008, Reuters reported that global inflation was at historic levels, and that domestic inflation was at 10–20 year highs for many nations.

  21. Causes The central debate about the origin has been focused on the respective parts played by the public monetary policy (in the US notably) and by private financial institutions practices. In the U.S., mortgage funding was unusually decentralized, opaque, and competitive, and it is believed that competition between lenders for revenue and market share contributed to declining underwriting standards and risky lending.

  22. Former Federal Reserve Board Chairman Alan Greenspan, Treasury Secretary Robert Rubin, and SEC Chairman Arthur Levitt vehemently opposed any regulation of financial instruments known as derivatives. Ultimately, it was the collapse of a specific kind of derivative, the mortgage-backed security, that triggered the economic crisis of 2008.  • The failure rates of subprime mortgages were the first symptom of a credit boom turned to bust and of a real estate shock. But large default rates on subprime mortgages cannot account for the severity of the crisis. Rather, low-quality mortgages acted as an accelerant to the fire that spread through the entire financial system. 

  23. Effects 1. Gross domestic product (GDP) dropped: Real gross domestic product (GDP) began contracting in the third quarter of 2008, and by early 2009 was falling at an annualized pace not seen since the 1950s. 2. Capital investment declined: Capital investment decline matched the 1957–58 post war record in the first quarter of 2009. The pace of collapse in residential investment picked up speed in the first quarter of 2009, dropping 23.2% year-on-year, nearly four percentage points faster than in the previous quarter. 3. Domestic demand declined.

  24. 4. Trade and industrial production declines, pollution decreases, unemployment increases, travel decreases, and small-business lending decreases, political instability rises.

  25. Countries most affected:  Ukraine, as well as Argentina and Jamaica, are the countries most deeply affected by the crisis. Other severely affected countries are Ireland, Russia, Mexico, Hungary, the Baltic states, United States and United Kingdom. By contrast China, Japan, Brazil, India , Iran, Peru and and Australia are among the least affected.

  26. Solution/Government Reaction (mainly US) 1.  Bailout of U.S. financial system 2. FDIC increases insurance limit to 250,000. Treasury also announced on September 19 a new $50 billion program to insure the investments, similar to the Federal Deposit Insurance Corporation (FDIC) program.

  27. 3. The American Recovery and Reinvestment Act of 2009, abbreviated ARRA  and commonly referred to as the Stimulus or The Recovery Act, is an economic stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack Obama. The primary objective for ARRA was to save and create jobs almost immediately. Secondary objectives were to provide temporary relief programs for those most impacted by the recession and invest in infrastructure, education, health, and ‘green’ energy. 

  28. Comparison Similarities: • Background: Financial bubble • Symptoms: Stock market crash • Causes: Misuse of credit and unsupervised investment • Effects: unemployment rate increases, GDP drops,  domestic demand declines • Government reaction: insure bank deposits and instill confidence in people, create jobs

  29. Differences • Over the 79 years between 1929 and 2008, great changes occurred in economic philosophy and policy • The stock market had not fallen as far as it did in 1932 or 1982, the 10-year price-to-earnings ratio of stocks was not as low as in the '30s or '80s, inflation-adjusted U.S. housing prices in March 2009 were higher than any time since 1890 (including the housing booms of the 1970s and '80s)

  30. The depression of the early '30s lasted over three-and-a-half years, and during the 1930s the supply of money (currency plus demand deposits) fell by 25% (where as in 2008 and 2009 the Fed "has taken an ultraloose credit stance").  • Furthermore, the unemployment rate in 2008 and early 2009 and the rate at which it rose was comparable to most of the recessions occurring after World War II, and was dwarfed by the 25% unemployment rate peak of the Great Depression. • The main cause of the recession is the burst of housing bubble. • Government reaction was more prompt and more useful in 2008's recession.    • The recovery was faster in this recession.

  31. Conclusion Both the Great Recession and the Great Depression were after and because of a bubble bursting. They were caused by misuse of credit and in general losing control of an investment market or investing. The freedom of investment is important, but the government should have a degree of regulation over them. Note: The current recession has not ended yet. It could deepen toward another depression.

  32. Sources Feinburg, Barbara Silberdick Black TuesdayBrookfield, CTThe Millbrook Press, 1995Grant, R.G.The Great DepressionGreat BritainHodder Wayland, 2002Harris, NathanielThe Great DepressionChichester, SussexRichard Clay Ltd.,1988 Pietrusza, DavidThe Roaring TwentiesSan Diego, CALucent Books, 1998Mllichap, NancyThe Stock Market Crash of 1929New York City, NYNew Discovery Books, 1994Collier, Christopher & Collier, James LincolnProgressivism, the Great Depression, and the New Deal 1901-1941New York, U.S.A.Benchmark Books, 2001

  33. Sources Faber, DavidAnd Then the Roof Caved InHoboken, NJJohn Wiley & Sons, Inc., 2009 Schraff, Anne E.The Great Depression and the New DealUSAFranklin Watts, 1990 Nardo, DonThe Great DepressionSan Diego, CAGreenhaven Press Inc., 2000Nishi, DennisLife During the Great DepressionSan Diego, CALucent Books, 1998

  34. Sources Wikipedia http://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Prohibition#Prohibition_in_the_United_Stateshttp://en.wikipedia.org/wiki/Prohibitionhttp://en.wikipedia.org/wiki/Late-2000s_recessionhttp://en.wikipedia.org/wiki/The_Roaring_Twentieshttp://en.wikipedia.org/wiki/Comparisons_between_the_late-2000s_recession_and_the_Great_DepressionYahoo! Financehttp://finance.yahoo.com/q/bc?s=%5EDJI&t=5y&l=off&z=l&q=l&c=http://finance.yahoo.com/q/bc?s=%5EDJI&t=my&l=off&z=l&q=l&c=

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