Current Economy and The Great Depresson - Research Paper Example

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Current Economy and the Great Depression Name Institution The Great Depression of 1929 was one of the worst economic periods in the world. The US had been experiencing prosperity and optimism for a decade, which propagated lending by individuals with the purpose of investing in the stock market…
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Current Economy and The Great Depresson
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As a result, half of the financial institutions in the US became insolvent. In summary, the US manufacturing production was down 54% in 1932 as compared to 1929, while the unemployment level were up by more than 25%, or more than 12 million people. The economic downturn soon spread to the rest of the world due to the relationship of the US with the Europe’s economy in the post World War 1 period. The major reason for the occurrence of the great depression was the deregulation in the banking industry especially in the US Securities and Exchange Commission. Today, the world is facing an economic crisis, which has been persistent since the great recession of 2009. The financial crisis is a result of an extensive credit-fueled bubble that preceded the economic boom of the late 1900s and early twenty first century (Eichnegreen & O’Rourke). The two economic periods have some similarities between them. In essence, the Great Depression and the current economic status occurred after periods of excellent economic growth, productivity, investment, and booms. The Great Depression was a result of extraordinary growth of the economy in the US resulting to the over-optimism of growth in the stock market. ...
What followed the economic growth was ungrounded optimism and over-speculation in real estate market. In government’s effort to change credit regulations that would favor economic growth, the Glass-Steagall policy was changed in the 1980s (Dent, 2010). The result was a build-up of subprime and stable mortgages, divided up and sold to spectators. However, most of these mortgages had bad loans, triggering the housing crisis that led to the great recession of 2009 and the current financial crisis. Another similarity is securitization. The effect of securitization was a driving factor for the US financial system domino effect during the Great Depression era. The same factor, though not in an ultra-modern shape and form, was a factor that has contributed to the current economic situation through dicing and slicing of tranches and pools of seniority. Excessive leverage was a driving force for financial pains and liquidation during the late 1920s. Analyzing the 1930s situation, it is clear that the problem was not the deleverage process, but rather the excessive leverage that occurred before the deleverage process. In similar manner, the 2008 deleverage process was a factor that led to these economic problems. The investment pools of the 1930s and the current Hedge Funds are similar in cause and nature (Dent, 2010). Corruption of the gatekeepers in the 1930s, the Worldcoms and Enrons, through the abetting and aiding by accounting firms resulted in profits on their sides. The companies were the gatekeepers of the financial system at the time, neglecting their responsibility of watching over the activities of the financial market. The same lot of gatekeepers is also responsible for the current economy Read More
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