Comparing with the now

This post was made for the sake of comparing the Great Depression with the one we are having, or recently having.

Politically:

The Great Depression

• The US economy before 1929 was going on a great course
• Right before election time (March 1929) Republican Government seized control over market
• March 1929: Hoover of the Republican was elected

Current

• End of 1992, George W H Bush applied restrictions to the bank and the market preventing a major bubble burst as USA’s economy was going onto the road of not being able to be supported by the real market, therefore slowing the bubble growth before it got too big. This caused a slight wobble in the economy
• 1993, the Democrats were elected and USA’s economy looked very well (IT bubble 1995 – 2000)
• Unlike his father, George W Bush let market go on freely ensuring the well being of the economy during his election during 2005. He was re-elected for his final stand of presidency
• Lack of control = bigger fall from the overly sized bubble

The Recovery:

The Great Depression

• Dropped Gold Standard
• Did not support the banks, let them drop

Current

• Fed Govt puts money into the banks
• Govt has lots of debts = peoples’ money, other country’s money
• banks put these money into the market again –> bubble again
• political depression

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The Patterns

Economically speaking, what caused the crash was very similar to what is causing our current depression.

Patterns:

1. Bubble stock/housing
2. People followed – Pack/Wave
3. Over excessive loans from the bank – eg: When one only has $1 but spends $10
4. Flipping the prices – Supporting the buying and selling with no real money involved
5. More and more people buy in as market grows
6. Money for Businesses go into the market
   
7. Market is unable to support prices
8. Bubble bursts
9. Everyone tries to get out by selling
10. Stock plunges
11. Debt piles up on banks – People cannot return debts
12. Banks declare bankrupt

1933 recovery methods:

1. Drop Gold standard

Current recovery methods:

1. Putting Federal money into banks – in order to save them preventing the loss of the peoples’ money
2. Govt. runs out of money
3. Govt. cannot return Bonds/Debts
4. Political Fall

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During the Crash

The above two graphs represents the GDP of US history. The top one is a more detailed intake while the bottom one gives a more overall image.

As you can see, the GDP dropped right after the market crash (Black Tuesday) during the 1929 but if you look closely, it wasn’t at the beginning of the year., but during the last quarter. There was an election during 1929 and it took place during March. It was the year Republican Herbert Hoover came to his seat. When you look at the patterns, it might prove to be quite familiar as a very similar ordeal happened not too long ago.

1920s. That was when the US economy was booming. This was what defined the Republican. In front of the people’s eyes, US was going on a great course thus the Republicans won with an overwhelming number. Although that was the case, the fact that the market plummeted after the election tells us that the economy was already gearing towards that course, it was all a matter of whether the government can hold it out after they get elected or not. Theoretically, it would have been a better idea to put some control over the economy but as the election drew close, it would be a much better thing for the campaign if the economy could be looking good at that time therefore, many people say the great depression was as serious as it was because of a successful campaign.

Comparing that situation to the one we had recently, we could say that George H W Bush gave us a great example of what could have happened if the Republicans didn’t do what they did back then. Instead of letting the economy go, this guy took the liberty of passing a few bills of restriction upon the market. For that reason, the US economy took a slight hiatus from the thrive. At the same time, he did not succeed in holding office for the second time. On the other hand, his son George W Bush succeeded in a re-election by doing the opposite.

Although these are only speculations among some analysts, it is what worked, therefore: reality DUN DUN DUN. In the end, it is only a theory.

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Numbers

While browsing, I looked into the hard numbers and looked to collecting these a bit more but just to update and keep to date:

The Depression’s impact on the economy
1929     1933
Banks in operation                                           25,568     14,771
Prime interest rate                                            5.03%     0.63%
Volume of stocks sold (NYSE)                         1.1 B     0.65 B
Privately earned income                              $45.5B     $23.9B
Personal and corporate savings                $15.3B     $2.3B
-Historical Statistics of the United States, pp. 235, 263, 1001, and 1007.

Behind the Bankers:

The Depression’s impact on people:
Consumer spending (in billions) on selected items, 1929-33
1929     1933
Food                           $19.5     $11.5
Housing                     $11.5     $  7.5
Clothing                    $11.2     $  5.4
Automobiles           $  2.6     $  0.8
Medical care           $  2.9     $  1.9
Philanthropy          $  1.2     $  0.8
Value of shares on the NYSE     $89.0     $19.0
Historical Statistics of the United States, p. 319.

Data (Mystery!):

• Contraction began in 1928 + 1929… Why so long??
• 1933: 25% of all workers + 37% of all non-farm workers were out of work.
  

  Detailed Unemployment rates in the US during The Great Depression

  

  General Unemployment rates in the US during The Great Depression

• U.S. economy began to recover in the second quarter of 1933
• Recovery stalled for most of 1934 + 1935… WHY??
• Recovery commenced in late 1935 – 1937

IJYO!

Visual Graph – History of Federal Reserve

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Great Depression: General Summary of Events

A front page summary of events that happened during the Great Depressions. In other words, a more detailed timeline.

• 1929 Oct – After 6 years of prosperity and spending, the Republican government finally lead America into a massive crash in stock. (Oct 29: Black Tuesday)
• 1930 Mar – 3.2 million people lost their jobs (compared to the previous record of 1.5 million)
• 1930 June 17 – Smoot-Hawley Tariff Act is passed! Major raise in tariffs on imported goods for the protection of home country products and jobs
• 1930 Fall – START! Collapse of first U.S. Banks
• 1931 Sept 21 – Great Britain goes off Gold Standard
• 1931 Fall-Winter – The government attempted to save the Dollar without going off the Gold Standard but failed (Attempts: Fed increased interest rates, Lots of US dollars are converted to gold)
• 1932 Jan – Congress set-up: lends $2 billion to banks, insurance firms, loan associations, railroad, credit organizations
• 1932 Summer – WWI veterans demands their bonuses and success!
• 1932 Apr-Jun – Government starts open market transactions to stimulate money supply (This plan is given up on during July of the same year)

And then…

• 1932 Nov – Roosevelt appointed President
• 1933 Mar – US goes off Gold Standard

Generally, America’s economy goes off into a high swing after the Democrats took seat. There is also the WWII that succeeds these events which further helped develop the economy of USA, mainly in its’ neutral position of supplying arms.

After reading some references, it seems that political play took on a major role before and after the depression, in both its’ recovery and starting. On top of that, all that can be said was that the rich got too rich and too many middle class people dropped down into the lower levels by loosing their jobs. The government also couldn’t handle the amount of money flowing around the market and much like our depression, since lay-offs affected so many people, consumer confidence also went down to its’ low-point. People were selling off apples in New york for just cents and the majority of the population could not afford to do excess spending on USA made products (Which represented higher prices in technology but the more affordable items are more expensive than that of other countries with low labor price => lower price products)

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