Historical analogy

Historical Analogy: Similarities and Differences between the 1929 Great Depression and the 2007-2009 Great Recession [student`s name] [university] [course] Historical Analogy: Similarities and Differences between the 1929 Great Depression and the 2007-2009 Great Recession Failed banks, panicked markets, record-high unemployment and widespread poverty - for students of history, all these have an all-too-familiar ring. But this isn`t the Great Depression, at least, not yet. This is the Great Recession, named as such to signify that the problem is not as serious as the 1929 event. Yet the parallels are uncanny, and many are asking, is history repeating itself? Through its name, the Great Recession people are wont to believe that it is only temporary and will not have the same devastating effects as the Great Depression, but three years after it was first acknowledged, Americans are still wondering when economic recovery will arrive, and how. The government has intervened through a stimulus package, a lesson it learned during the Great Depression, but economic production is slow to respond. Moreover, many companies are still having troubling in keeping their business afloat, and with stricter banking regulations, many are bound to fail from acquiring additional loans to sustain their operations. What are the similiarities and differences between the 1929 Great Depression and the 2007-2009 Great Recession? This paper hopes to address this question as well as determine some of the lessons learned from these two economic recessions. The Causes of the Two Economic Recessions Like in the Great Depression, economists have warned early in 2007 of an impending economic disaster if the derivative market remains unregulated. But it wasn`t until the collapse of the Lehman Brothers in August 2008 when the United States was finally forced to admit that a financial crisis was underway ADDIN Mendeley Citation{1719923e-a255-4f95-a489-1aaa9c52bad2} CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "family" : "Sandbrook", "given" : "Dominic" } ], "container-title" : "Daily Mail Online", "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2011", "9", "23" ] ] }, "title" : "Meltdown month: Wall St Crash, Black Wednesday, collapse of Lehman Brothers... all were hit in September. So is history about to repeat itself?", "type" : "article-newspaper" }, "uris" : [ "/documents/?uuid=1719923e-a255-4f95-a489-1aaa9c52bad2" ] } ], "mendeley" : { "previouslyFormattedCitation" : "(Sandbrook, 2011)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" } (Sandbrook, 2011). The Lehman Brothers, itself a survivor of the Great Depression, was an important financial adviser and underwriter for many of the world`s growing companies. It had a key role in the derivatives industry, holding more than $400 trillion in investments. By defaulting on its obligations, it caused chain reactions to the market and caused the destabilization of the stock market. The day it filed its bankruptcy is now known as "Black Wednesday", a clear referral to the "Black Tuesday", that day in 1929 when the Wall Street prices crashed and the Great Depression was etched in history. The difference between 1929 and 2008 economic downturns is that the former was due to a stock market crash while the latter was because of massive defaults on mortgage payments, but then again, both are simply different forms of a financial crisis and were a result of speculation. While the 2008 economic crisis was not initially due to a stock market crash, it did lead to one. In October 2007, Dow Jones fell by 42% from its high level in October 9 to its lowest in October 27; a level that almost equaled the 1929 plunge of 47%. The main difference was that in 1929, the stock market crash was slow in development. It started in September and then rallied in the spring of 1930 until finally plunging to 41 points in 1932 ADDIN Mendeley Citation{8b2282ff-c55f-41ad-8a4f-1e6a66bd1ece} CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "family" : "Waggoner", "given" : "John" } ], "container-title" : "USA Today", "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2008", "11", "4" ] ] }, "title" : "Is today's economic crisis another Great Depression?", "type" : "article-newspaper" }, "uris" : [ "/documents/?uuid=8b2282ff-c55f-41ad-8a4f-1e6a66bd1ece" ] } ], "mendeley" : { "previouslyFormattedCitation" : "(Waggoner, 2008)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" } (Waggoner, 2008). Spending and Unemployment The huge declines in stock prices has led to reduction in wealth and decrease in spending for both economic crises ADDIN Mendeley Citation{8b2282ff-c55f-41ad-8a4f-1e6a66bd1ece} CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "family" : "Waggoner", "given" : "John" } ], "container-title" : "USA Today", "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2008", "11", "4" ] ] }, "title" : "Is today's economic crisis another Great Depression?", "type" : "article-newspaper" }, "uris" : [ "/documents/?uuid=8b2282ff-c55f-41ad-8a4f-1e6a66bd1ece" ] } ], "mendeley" : { "previouslyFormattedCitation" : "(Waggoner, 2008)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" } (Waggoner, 2008). People became frugal because of the negative economic outlook. This loss of consumer confidence has led to overcapacity in many industries. In both economic recessions, demand for products were very low but supply was high. To offset their high costs, companies were forced to lay off workers, which then led to a high unemployment rates. Unemployment in 1929 reached as much as 25% while in the current recession it peaked at 10.1% in October 2009 where most of the increase in unemployment occurred in the first six months ADDIN Mendeley Citation{52b54bcc-458a-47e0-b715-1d8a7339bd2c} CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "family" : "Labonte", "given" : "Marc" } ], "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2010" ] ] }, "title" : "The 2007-2009 recession: similarities to and differences from the past", "type" : "report" }, "uris" : [ "/documents/?uuid=52b54bcc-458a-47e0-b715-1d8a7339bd2c" ] } ], "mendeley" : { "manualFormatting" : "(Labonte, 2010, p.3)", "previouslyFormattedCitation" : "(Labonte, 2010)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" } (Labonte, 2010, p.3). Just like in the Great Depression, unemployment rates are slow to pick up as many companies are still recovering from their initial losses. Moreover, both economic downturns have spread abroad, thereby causing a contraction in the market and leading to the further decrease in the demand for goods. Because companies cannot market their products abroad, the government is forced to intervene in order to stimulate economic growth. In the 1929s, the government employed thousands of citizens in the construction industry, thereby allowing them to earn money so they can increase their capability to spend. From 2008 to 2009, re...