Introduction
The Great Depression
Before the Great Depression occurred, US faced an economic boom in 1920s and then there was a depression period (Iranj, 2012). In Great Depression, many companies went bankrupt. Unemployment rate was 25% in Great Depression as well and today there are a lot of states in America that are facing the problem of unemployment (David, 2011). One of the main factors the current economic crises and the Great Depression is the risky investments. Same was the case in 2008. Europe and UK also faced the similar problems. People are still in a sense of déjà-vu as they took loans to make investment in 1929 when the stock market was down, they were expecting the market to go up so that they can sell they stocks and when the Great Depression occurred, most of the banks crashed. Right now, the banks don’t have enough money to give loans to the people (Spencer, 2012). US have remained the epicenter in the current economic crises and in the Great Depression for the financial contraction. In the past few years the aggregate demand has been supported by the discretionary fiscal stimulus (Helbling, 2009). In the Great Depression, conditions were worst, and in the past few years, USA faced some serious problems like increased current account deficit along with national debt that may give result to different economic troubles. There are many chances that the monetary policy doesn’t remain effective. As far as the global economy is concerned, it is more integrated. The central banks all over the world are trying harder that the Great Depression doesn’t occur again (Amadeo, 2010). In Mississippi, a huge number of farmers had to sell their assets and their crops couldn’t get them the profit they were expecting. The asset value was fallen and a large number of investors were badly affected (Howarth & Becker, 2009).
Current Situation
USA is still facing the same monetary mischief as it was in the Great Depression. We are making the same mistakes again in the business cycles. In 2008, the financial crises were a wake up call for America when some of the culprits were calling for high tariffs and tax rates. This caused the recession in 1930 and lasted for many years (Paul, 2012). People today are making the same mistakes as they made in the Great Depression by taking their money out from the banks and throwing it in Treasury bills. Such risky investment may give result to economic problems when people take loans from banks to make investments in stock exchange and on the collapse of stock exchange they are unable to return the loan neither to make more investment.
In the current situation of US, there are structural, social and economic problems. These problems were less or didn’t even exist in 1929. Right now, there are government employees exceeding 21 million who are having obscene pensions and salaries along with free medical facilities. Federal employees are earning huge amounts (Root, 2012). This has given a rise to the economic problems where the richer is getting richer and poor is becoming poorer. Giving money to poor is no longer supported in US. Unemployment insurance is taken off from the people (Aaron, 2011). Such things are making the conditions worst.
The lessons from the Great Depression and the Wall Street Crash have affected the mentalities of American policy makers as well as the American bankers. In 2008-09, the American government inundated the manufacturing sectors with 8.5 trillion dollars which are almost double the total WWII cost. According to some of the economists, USA is still not in the depression like it was in 1929, as US is still not facing the 25% unemployment rate. The GDP has not dropped down below 33%. The Auto industry that was in a collapse situation in 2008 is making improvements. The new jobs are on their way but the process is very slow (Davison, 2012).
It is also said that the Great Depression will not occur again. To some extent, it is true, the exact repetition of thirties is not possible however, and US may face the crises in other forms. One of the biggest lessons learnt from the Great Depression was use of money by the people and making risky investments. Enormous legacy has been left by the Great Depression. The economic policies at that time failed in a practical manner and more inflation occurred (Samuelson, 2010). As far as the stock exchange is concerned, this should be known to every investor that there is not an investor always to buy the stock when another is willing to sell. The stock exchange in US is facing the same problem where people are making unnecessary and risky investments. Taking loans from banks and making risky investments could result in bankruptcy and other economical problems. The investors need to be more careful and come out from the state of déjà-vu of 1929 (Rukeyser, 2012).
For the Great Depression, the main reason was the government debt but the main catalyst was Wall Street. The Private debt played the major role in sinking the global economy. This private debt includes both the private consumer debt and the private enterprise debt. In 1929, the government debt was almost 40% of the America’s GDP. However, the Wall Street never took the responsibility of the Great Depression. The same force which caused the Great Depression caused the same disaster in 2008 (Clark, 2012). The purchasing across the board was also reduced in the Great Depression which caused the stock market to crash. People started loosing their jobs and the fear of economic woes was rising (Kelly, 2012).
In past few years, the American government also tried to boost the economy by increasing the federal borrowings however, this didn’t work and the problems are still there. Like the previous recessions in US, there is no such recovery made. After June 2009, the unemployment started rising and till December 2010, it rose continuously. In past 4 years, there were 5.6 million people in America who remained long term unemployed for a period of 7 months (Ferrara, 2012). People right now are expecting more from their government and most of them are not satisfied by the efforts put by the government to control the current economic crises. This was not the case in the Great Depression. In the Great Depression, people were more optimistic (Allen, 2010). Most of the programs launched by the government like Federal Reserve’s Innovative lending, have failed. There is a long way to go as the people are badly affected by the financial meltdown (Sloan, 2012). America has lost trillion of dollars in unnecessary wars and national debt by the Homeland Security Department, Washington (Stahis, 2012).
Solutions
International trade can solve our current economic problems. The companies need to change their orientation. Social Security programs should be launched. Service based companies need to expand their operations as the trend is also changing from product orientation to service orientation (David, 2011). The Central banks in America need to play an important role to find out the solution for the current economic problems. They need to intervene for the provision of better financial systems with lowered interest rate policy and liquidity (Helbling, 2009). The financial system needs to be under control or we may face the same situation like we did in 1929. One of the main reasons of today’s problem is the relaxation given to politician in the rules by making the “shadow banking system”. This system has now taken over the most of banking business by offering far better deals then the traditional banking systems (Krugman, 2008).
Conclusion
It has been four years the US could not come out from the economical crises. Now the government needs to take serious steps before the conditions get worst. The current economic problems of US include the unemployment, weak economy, falling stock market, debt deficit and the credit market collapse. From the viewpoint of the Great Depression, the trade deficit needs to be reversed. Open markets should be promoted. The Federal Reserve needs to adopt expansionary policy. Banks should increase their lending and should trust the creditworthiness of their customers. The government needs to re-design the fiscal and monetary policies as some of the programs and policies launched to control the situation have failed. International trade should be encouraged in order to reduce the unemployment rate.
References
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