Introduction
What happens is that, speculation regularly occurs when over production is in full swing, it provides temporally market and for this reason precipitates outbreak of crisis and increasing force ( Engerman & Gallman ,2000).The crisis will first break in the area of speculation and it hits production later. What will appear to the superficial observer as the cause of the crisis is not overproduction but it’s the excess of speculation, but this tends to be a symptom of overproduction. The following disruption of production does not appear as a consequence of its own exuberance but as a setback caused by the collapse of speculation. When the crisis reaches its peak the commercial transaction comes to a stand still (Asimakopulos, Cairns, and Green & Weldon1991).
The decennial cycle, periods of average, activity production under high pressure depends on constant information less or greater absorption along with the re-formation of industrial reserve or surplus population. Superficiality of the political economy manifest itself in this fact that it looks upon the expansion and contraction of credit which is one of the symptoms of periodic changes of industrial cycle( Engerman & Gallman ,2000).
The Great Depression and the Current US Economy
The worst and the largest economic depression in the history of United States occurred in 1929 and lasted until the early 1940s.The depression spread to most of the world’s industrialized countries which had become economically dependent on one another in the 20th century. These depressions lead to rapid decline in the production, sale of goods and sudden increase in unemployment (Engerman & Gallman, 2000).
Business and banks had to stop operating, people where retrenched, homes, and savings depended on charity to survive. 1933 was recorded as the worst point in depression because 15 million Americans were unemployed. A number of serious weaknesses in the economy were caused by this depression. Although 1920s appears to be prosperous time, the income was unevenly distributed where the wealth had to make the largest profits while most of the Americans spent more than earned with farmers facing heavy debt and low prices (Engerman & Gallman, 2000).
The lingering effects of World War I had contributed to the crisis which kicked off great depression. The US market crash of 1929 ruined thousands of investors and also destroyed confidence in the economy. This was because the stock price plummeted greatly more than what the investors had ever experience in the history of US wall street market. The depression produced lasting impacts on the US economy that are still palpable more than half a century after it ended ( Engerman & Gallman ,2000).
The great depression basically changed the relationship between the government and the people because they expected and accepted a large federal role in their livelihood and the economy. What happened is that people were met with opposite of what they expected and this ruined their relations with the government (Soros, 2008).
The hardships during the depression affected many Americans altitude towards work, life and the community. Many people who had survived the depression wanted to protect themselves from lacking necessities. Habits of frugality, careful saving were adopted for the rest of their lives, and many had for the rest of their lives had a focus of accumulating material wealth so as to create comfortable life different from what they experienced during the depression years (Soros, 2008).
It’s a big misconception that the stock market crash in 1929 was the sole cause of the great depression. The two events were related but both were as a consequence of deep problems in the modern economy that were building up the prosperity decades in 1920s.
The needs of the economy fitted nicely with the self-centered attitudes of 1920s. The modern history had the capability to produce substantial quantities of consumer goods of which then created a fundamental problem (Soros, 2008).
People were persuaded to abandon traditional values such as saving, postponing pleasures and buying only what they afforded and needed. As a result of these trends, in the 1929 0.1 percent of the Americans had a total economy which was equal to that of the bottom 42 percent. The meaning was that listened and purchased new products from the advertisers had money which was not enough to do so (Asimakopulos, Cairns, and Green & Weldon1991). American farmers had represented quarter of the economy and were already in economic depression during this time and this made it difficult for them to be involved in the consumer buying spree. International problems had also weakened the economy. United states become the chief creditor after the World War I as the European countries struggled to pay war debts and the reparations. At the same time united had maintained high tariffs on goods imported from other countries and was making foreign loans trying exporting products. (Asimakopulos, Cairns, and Green & Weldon1991)
Before we get into comparison of the great depression of 1929 and the current economy of us, first we can look at what the current global turmoil presents. The US is going through a most severe global turmoil since the time of the great depression. The similarity between the two is that they had origin from the US and the world wide nations are feeling its power effect (Soros, 2008).The financial global turmoil tends to result from the combined results of intermingled financial mistakes. We have some fundamental causes of the current depression (United Nations Dept. of Economic and Social Affairs et al, 2008).
First, USA has been busy in the last two decades relishing sustainable development which has been actually buffered with low inflation in the last two decades this can be termed as ignorance of business cycle of the economy. The symptoms of this were reflected 20 months ago when the US was in combat with excess liquidity in the market. This was a good sing of coming real estate bubble and the asset price inflation (Soros, 2008).What happened is that it’s the explosion of this real estate bubble that lead to the inflation (United Nations Dept. of Economic and Social Affairs et al, 2008).
Secondly, protection was enjoyed by the private and investment banks. The economic conditions which were booming had made these banks make higher risks where most of the deals were highly leveraged transactions (Soros, 2008).
However, risks had turned out to be negative for the high flying banks because they did not get enough capital so as to support their high risk investments. Lastly there is the failure of the top tier management in providing of guidance to their deal makers.
Despite the concerted efforts by the Federal Reserve and many other policy makers the US remains under formidable stress. The economic stress is weakening even before the intensification of the financial crisis (Soros, 2008).
The duration of the economic turmoil is different to judge as the economic conditions will remain weak for a considerable time even if markets continue to make progress. The household spending is likely to continue to be depressed by the date in household wealth weak consumer confidence accumulating job loses as well as he lack of credit availability (Soros, 2008).
Conclusion
The economy of US is faltering badly and the reason for the expectations of the downturn gathering pace, the negative real estate rates compliments of fed and stimulus not withstanding. Today with the bursting bubbles within the corporate and the municipal finance connecting with the mortgage burst, the US bubble has rapidly fallen desperately short of sufficient credit. When we have greater credit market dislocation and broad based tightness of credit, there is also, bleaker become economic prospects and a more intensive revulsion in wall streets credit instruments (United Nations Dept. of Economic and Social Affairs et al, 2008).
While previously there was an underestimation of the resilience of US credit bubble economy, it was in every example failure to appreciate the ability of the Wall Street finance to expand to greater degrees of bubble excess (United Nations Dept. of Economic and Social Affairs et al, 2008).
With the current contemporary finance in an historic collapse the credit today is only in a position to have a downside surprise. This shapes the view of fast escalating credit crisis feeding an arduous economic adjustment period (United Nations Dept. of Economic and Social Affairs et al, 2008).
Reference:
Asimakopulos A., Cairns R., Green Christopher & Weldon.J (1991): Economic Theory, Welfare and the State: Essays in Honor of John C. Weldon; ISBN 0773508538, McGill-Queen’s Press – MQUP.
Dudley William (1994): The Great Depression: Opposing Viewpoints; ISBN 1565100840, Green haven Press.
Engerman.S & Gallman.R (2000): The Cambridge Economic History of the United States: The Twentieth Century; ISBN 0521553075, Cambridge University Press.
Soros George (2008): The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means; ISBN 1586486837, PublicAffairs.
United Nations Dept. of Economic and Social Affairs et al (2008): World Economic Situation and Prospects 2008; ISBN 9211091551, United Nations Publications.
