This Is Not the Second Great Depression

by Sal on November 24, 2008

in Economy

Calm the rhetoric.  Despite assertions to the contrary, the nation is not going through a second Great Depression.  When one looks at the two situations, there are very few similarities. From a strictly numbers perspective, we have a long way to go before we end up in a Depression-era financial situation.

  • Great Depression Unemployment reached a high of 24%.  Our current unemployment rate is 6.5%, and most experts expect it to top out at 7.6%.
  • During the Great Depression, over 4,000 banks failed, wiping out the savings of most Americans.  There was no FDIC available to insure American savings, so all of that wealth was virtually wiped out.  During this crisis, 19 banks have failed to date, far less than even the 747 Savings and Loan institutions that failed in the 1980s.
  • The Dow fell 90% during the early years of the Great Depression.  In Contrast, the Dow has currently fallen roughly 43%, by no means great, but hardly the full-blown crash of 1929.
  • GDP fell 27% during the Great Depression.  Thus far, we have only seen a 0.03% decrease in U.S. GDP.
  • U.S. Exports were down 66% during the Depression (due to draconian trade practices in place at the time).  In today’s economy, they are up 15%.

Stanford Professor David M. Kennedy explains about the protections in place today that were not in place during the 1930s.  While all of the banks were closed to avoid collapse, today’s FDIC insurance prevents much of the panic and collapse that happened in 1929 from happening today.

The situation which led to the original Great Depression has always been something that I assumed the history books taught in school were correct on.  I had been taught that the original Depression was due to people buying stocks on the margins, and the loans being called in during 1929 that caused the market to crash.  In reality, the crash had more to do with the Federal Reserve Policy of tightening the money supply (thanks to Mark Levin for originally educating me on this through his radio show). The Depression was exacerbated by the implementation of confiscatory tax rates and protectionist trade policies, leading to the decade-long stagnation in the American Economy that was only ended by the onset of World War II.  In any case, we’re far from a Great Depression.  So relax, take a deep breath, and continue living your life.

{ 1 comment… read it below or add one }

Danny L . McDaniel January 30, 2015 at 3:03 am

This short, but timely economic essay shows that if people can learn something they can unlearn it when they receive the facts. The Financial Meltdown of 2008 and 2009 was not the Great Depression. Unfortunately, the economic recovery of that period has been too slow and laborious because of President and economic advisors who are wedded to outdated economic practices and policies that never proved they worked in the first place. There is a certain element “dumb luck” among economist and the period of 2008 thru 2014 demonstrates that.

What was need was tax reform, restraint on government spending, less regulation (particularly Obamacare), and more thorough requirements by Americans to obtain mortgages, less of a spend today pay tomorrow mentality.

It was a very good concise article.

Danny L . McDaniel
Lafayette, Indiana


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