The Great Depression and the Great Recession Essay

Document Type:Essay

Subject Area:Economics

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While the global economy has suffered many financial crises, the most outstanding economic downfalls in history are the Great Depression of 1929-1939 and the Great Recession of 2007-08. Even though the two economic crises occurred in different historic times and had different severities, they were both characterized by massive federal government spending, rising tax rates and were triggered by naïve actions of the federal government. The Great Depression and Great Recession presents a worst case of the mismanagement of the US economy orchestrated by unpopular economic policies. Both the Great Depression and the Great Recession have origins in the government’s miscalculation and unpopular policies. The seeds of the two economic crises were planted when the federal government staged a systematic move to revise tax resulting into the stifling of trade and damaging of the American exports (Madsen 2001).

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The government made a naïve move to bail out the collapsing banks which instead of arresting the situation it even worse resulting into the Great Recession. Almost the same factors triggered the two financial crises. The sitting US presidents responded in a similar way to the financial crises even though happening at different times in history. Both President Roosevelt and Obama resorted into massive spending with the hope that it would trigger economic expansion and save the country from the economic crisis. On Roosevelt’s side, he introduced the Agricultural Adjustment Act (AAA) which pumped a lot of money to the farmers not only to produce enough but also expand Hoover’s Reconstruction Finance Corporation. Despite increasing spending to address high unemployment that was evident when he resumed office, the rate continued to increase steadily.

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Acute unemployment during both the Great Depression and the Great Recession led to depressed wage incomes. Government spending could not address the problems brought about by the Great Recession as Obama had envisioned. Both the Great Depression and Great Recession had a profound impact on the US economy and households which is reverberating even to present. Both were characterized by a massive banking crisis across the nation. While the Great Depression and the Great Recession have many aspects in common anchored on the causation, development, and impacts on the economy, each financial crisis had some distinct features that make it unique in the economic history. As Almunia et al. (2010) observe, the major difference between the two economic crises is anchored on the policy response that was adopted by the regimes during their occurrence.

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Another key difference notable is the magnitude of the crisis each caused to the economy. Other significant differences are evident in the origins, development and the overall impact each had on the economy. The fiscal policies adopted by the Federal Reserve during the two crises were also different. During the Great Depression, the Federal Reserve resorted into keeping a balanced budget because its major worries were the deficit spending. The fiscal policy was intended to reduce the deficit in the financed stimulus initiatives. However, during the 2008 financial crisis, the Federal Reserve was not interested in a balanced budget which led to a major deficit in the stimulus package program. There was massive government spending on various targeted special interest groups. While the stock market crashed in either case, the impact was different, and evidently, the stock market crash during the Great Depression was more devastating than during the Great Recession.

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Again, according to earlier studies, the magnitude of damage to the financial institutions is different between the Great Depression and the Great Recession. It is claimed that nearly 50% of banks nationwide which is over 9000 failed during the Great Depression as opposed to 57 banks representing 0. 6% of the banks which collapsed during the Great Recession (Goldman 2009). These distinct differences illustrate that, while the Great Depression and the Great Recession were somewhat similar in nature, they inflicted different magnitudes of suffering to the people. However, during the Great Depression, the contractionary policies were adopted as opposed to the expansionary policies during the Great Recession. In overall, the Great Depression was more devastating than the Great Recession.   References Almunia, M. , Benetrix, A. , Eichengreen, B. com/news/storysupplement/economy/recession_depression/ Madsen, J.

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