Great Depression: Turning Point and Recovery
Read this article. Some people contend that the beginning of World War II ended the Great Depression, while others suggest it was the end of World War II that brought economic restabilization.
Comparison with the Great Recession
The worldwide economic decline after 2008 has been compared to the 1930s.
The
causes of the Great Recession seem similar to the Great Depression, but
significant differences exist. The then-chairman of the Federal
Reserve, Ben Bernanke, had extensively studied the Great Depression as
part of his doctoral work at MIT, and implemented policies to manipulate
the money supply and interest rates in ways that were not done in the
1930s. Bernanke's policies will undoubtedly be analyzed and scrutinized
in the years to come, as economists debate the wisdom of his choices. In
2011, one journalist contrasted the Great Depression of the 1930s as
opposed to the late-2000s recession.
If we contrast the 1930s with the Crash of 2008 where gold went through the roof, it is clear that the U.S. dollar on the gold standard was a completely different animal in comparison to the fiat free-floating U.S. dollar currency we have today. Both currencies in 1929 and 2008 were the U.S. dollar, but analogously it is as if one was a Saber-toothed tiger and the other is a Bengal tiger; they are two completely different animals. Where we have experienced inflation since the Crash of 2008, the situation was much different in the 1930s when deflation set in. Unlike the deflation of the early 1930s, the U.S. economy currently appears to be in a "liquidity trap," or a situation where monetary policy is unable to stimulate an economy back to health.
In terms of the stock market, nearly three years after the 1929 crash, the DJIA dropped 8.4% on August 12, 1932. Where we have experienced great volatility with large intraday swings in the past two months, in 2011, we have not experienced any record-shattering daily percentage drops to the tune of the 1930s. Where many of us may have that '30s feeling, in light of the DJIA, the CPI, and the national unemployment rate, we are simply not living in the '30s. Some individuals may feel as if we are living in a depression, but for many others the current global financial crisis simply does not feel like a depression akin to the 1930s.
1928
and 1929 were the times in the 20th century that the wealth gap reached
such skewed extremes; half the unemployed had been out of work for
over six months, something that was not repeated until the late-2000s
recession. 2007 and 2008 eventually saw the world reach new levels of
wealth gap inequality that rivalled the years of 1928 and 1929.