Wednesday, October 7, 2009
Monday, October 5, 2009
Global Recession – How Much Worse Can It Get?
At a time when change has triumphed over stagnation; when equality has emerged over injustice; when a new president has ushered in a new generation of America; economic crisis remains the sad face of politics.
Frightening parallels have been drawn between the Great Depression of the 1930s and the current economic downturn of the 2000s. When deflation and stock crashes and housing crisis are the words of the day, visions of Black Tuesday, Warren Harding, and skyrocketing unemployment are the inevitable.
Today’s economy, faltering first in the U.S. before globally, has not yet reached the pits of the 1930s. Some economists and leaders say we are not headed down that darkened path, while others remain weary.
Similarities and differences persist from that economic plague 70-years-removed, but many remain hopeful that things can get better just as easily as they can get worse.
Similarities with the Great Depression
Foreshadowing difficult times, the market remained in flux just before it crashed in 1929, as it did before the smaller crash in 2008. Though the crash was not nearly as devastating in 2008, it was enough to set an already weakening economy further into the depths of economic crisis.
As was true during the depression, unemployment has shot up and remained high during the current crisis. The auto industry had declined in 1930, as it has done today in cities like Detroit, where layoffs are a crushing part of everyday life.
Deflation was rampant during the Great Depression, with prices dropping, companies losing money, and workers being laid off. Today, the trend is similar, as minor deflation has kept the unemployment rate over 10% in some places. The little money that was available then was not used to buy the lower-priced products on the market, which triggered a deflationary spiral of loss and layoffs, which has happened on a smaller scale today.
During the depression, the restoration of Britain’s Gold Standard parity helped induce loss, paralleled today by controversies surrounding the London InterBank Offered Rate (LIBOR). Today nations outside of the U.S. are reeling because of the crisis here, and in 1933 nation’s as far as Britain and Germany were stung by the ailments of one of the world’s top trading partners.
Differences with the Great Depression
During the depression of the 1930s, credit was widely available, and usually at low rates. With the crash today, because of the housing market and the failure of lending institutions, credit rates were hiked. The low availability of credit in 2007 and 2008 led to the foreclosures and housing price cuts that provided the spark for the current recession at its onset. The housing market though, so much a part of the recession today, was not among the key factors that brought about the collapse of the market in the 1930s.
Unlike the Great Depression, wages have remained steady in today’s economic crisis, a sign economists point to as encouraging. Another optimistic point today is that the country is currently suffering no shortage of money supply, and that the deflation that was so rampant during the depression may adjust itself during the current crisis.
Is a Depression Possible Today?
Though times are as difficult as they have been economically in the United States since at least the 1980s, and possibly since the 1930s, most economists agree that a full-scale depression is unlikely.
With the borrowing capabilities of the United States government, and the willingness of the lawmakers to issue bailouts, most industries have at least the capability to be corrected.
Steps are being taken to improve the situation. Whether or not change is being made is up for debate, but most agree that the freefall has at least stopped. Negative movement has been stabilized by billions of dollars of bailout money. Credit crunches have been remedied by cut interest rates, and housing price cuts have been helped by purchased assets and money injected to mortgaging and financial institutions.
While it may get worse, the economy is likely not headed for total depression as was experienced in the 1930s. The near 30% unemployment rate experienced by cities then is a far cry from the 10% experienced by some of the worst off today.
The stabilizing measures that worked during the Great Depression have been equaled today. President Barack Obama has proposed the creation of 4 million jobs during his administration, and looks to combat deflation by increasing jobs, which will increase spending power.
Though the slide has been long and frightening as of late, Americans can look at what they have faced in the past, and what they have overcome, with a sense of relief. A new president and a new era for change were supposed to be the trends of the time, but recession and shock have instead replaced them.
Many believe there is still time for the promises Obama has made – promises of discovery and breakthrough and change – but he must first make good on one promise: to restore the economy.
Frightening parallels have been drawn between the Great Depression of the 1930s and the current economic downturn of the 2000s. When deflation and stock crashes and housing crisis are the words of the day, visions of Black Tuesday, Warren Harding, and skyrocketing unemployment are the inevitable.
Today’s economy, faltering first in the U.S. before globally, has not yet reached the pits of the 1930s. Some economists and leaders say we are not headed down that darkened path, while others remain weary.
Similarities and differences persist from that economic plague 70-years-removed, but many remain hopeful that things can get better just as easily as they can get worse.
Similarities with the Great Depression
Foreshadowing difficult times, the market remained in flux just before it crashed in 1929, as it did before the smaller crash in 2008. Though the crash was not nearly as devastating in 2008, it was enough to set an already weakening economy further into the depths of economic crisis.
As was true during the depression, unemployment has shot up and remained high during the current crisis. The auto industry had declined in 1930, as it has done today in cities like Detroit, where layoffs are a crushing part of everyday life.
Deflation was rampant during the Great Depression, with prices dropping, companies losing money, and workers being laid off. Today, the trend is similar, as minor deflation has kept the unemployment rate over 10% in some places. The little money that was available then was not used to buy the lower-priced products on the market, which triggered a deflationary spiral of loss and layoffs, which has happened on a smaller scale today.
During the depression, the restoration of Britain’s Gold Standard parity helped induce loss, paralleled today by controversies surrounding the London InterBank Offered Rate (LIBOR). Today nations outside of the U.S. are reeling because of the crisis here, and in 1933 nation’s as far as Britain and Germany were stung by the ailments of one of the world’s top trading partners.
Differences with the Great Depression
During the depression of the 1930s, credit was widely available, and usually at low rates. With the crash today, because of the housing market and the failure of lending institutions, credit rates were hiked. The low availability of credit in 2007 and 2008 led to the foreclosures and housing price cuts that provided the spark for the current recession at its onset. The housing market though, so much a part of the recession today, was not among the key factors that brought about the collapse of the market in the 1930s.
Unlike the Great Depression, wages have remained steady in today’s economic crisis, a sign economists point to as encouraging. Another optimistic point today is that the country is currently suffering no shortage of money supply, and that the deflation that was so rampant during the depression may adjust itself during the current crisis.
Is a Depression Possible Today?
Though times are as difficult as they have been economically in the United States since at least the 1980s, and possibly since the 1930s, most economists agree that a full-scale depression is unlikely.
With the borrowing capabilities of the United States government, and the willingness of the lawmakers to issue bailouts, most industries have at least the capability to be corrected.
Steps are being taken to improve the situation. Whether or not change is being made is up for debate, but most agree that the freefall has at least stopped. Negative movement has been stabilized by billions of dollars of bailout money. Credit crunches have been remedied by cut interest rates, and housing price cuts have been helped by purchased assets and money injected to mortgaging and financial institutions.
While it may get worse, the economy is likely not headed for total depression as was experienced in the 1930s. The near 30% unemployment rate experienced by cities then is a far cry from the 10% experienced by some of the worst off today.
The stabilizing measures that worked during the Great Depression have been equaled today. President Barack Obama has proposed the creation of 4 million jobs during his administration, and looks to combat deflation by increasing jobs, which will increase spending power.
Though the slide has been long and frightening as of late, Americans can look at what they have faced in the past, and what they have overcome, with a sense of relief. A new president and a new era for change were supposed to be the trends of the time, but recession and shock have instead replaced them.
Many believe there is still time for the promises Obama has made – promises of discovery and breakthrough and change – but he must first make good on one promise: to restore the economy.
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