GREAT DEPRESSION 1929 Vs CURRENT CRISIS

1929-33 was a period when universal banks were ruptured into separate commercial and investment banks, which led to ascension of big giants like Goldman Sachs, Morgan Stanley and more. However current global turmoil has taken a reverse gear where many of these investment banks are again turned into large commercial banks.
This article intends to seek out differences and similarities between great depression of 1928 and current global fiasco.
But before going in to details let’s go back and brush ourselves on what exactly was great depression.

Great depression
The great depression which originated in 1929 in US and spread world over by 1930’s was characterized by barren business and huge unemployment. The main cause of this depression which took all the nations in its web was crashing of the stock markets in 1929. Thousands of investors lost their money in stock markets, leading to a longest recession which comprised huge lay offs, unemployment , wiping out of business activities , which left million of people to depend on government or charity for food.
By 1930’s this depression became a worldwide phenomenon, taking all countries into its grip. This lead to vast downfall in global trade as each country tried to protect its own industries by imposing high tariffs on imported goods.

Causes of great depression
· Stock market crash: As mentioned above one of the factors which triggered off this depression was failure of stock markets on October 29, 1929, which led to loss of about 40 billion dollars to stakeholders. Though stock markets after that started to regain on the path of recovery, by end of 1930, but some other factors at work impelled America to do into deep recession.
· Bank failures: During the period of 1930’s 9000 banks filed for bankcruptcy.Bank deposits were not insured and thus as banks failed people lost their savings. The banks which survived in this turmoil, due to gloomy economic conditions and to survive in these conditions stopped creating new loans, which in turn led to slowdown in business activities and less expenditure.
· Cut-back in purchasing power: with the failure of stock markets and fears of further financial fiasco, led to cut – back in purchasing of items from all individual classes. This in turn led to piling up of inventories, which stimulated a cut down in production, leading to layoff of employees. Unemployment reached to a level of 25%, leading to lowering the purchasing power of individuals.
· Hawley –Smoot Tariff: as businesses were slowing down, to protect its own industries American government created a Hawley-Smoot tariff in 1930, which meant to charge high import tariffs on imports, this led to deterioration in global trade leading to economic retaliation

Current scenario
Before doing comparisons lets see what current global turmoil looks like: As it’s said truth is bitter, the fact is we are going through a most severe global turmoil since the days of great depression. The similarity between both the crises is that they both originated from USA and now worldwide nations are facing its spillover effects. This financial global turmoil is a combined result of some intermingled financial mistakes. There are some fundamental causes at roots of this depression.
· Firstly are the conceited norms in USA. USA has always been relishing sustainable economic development, buffered with low inflation rates in last two decades. This led to complete ignorance of business cycle of economy. The signs of this were reflected 20 months ago, when America was combating excess liquidity in the market. That was the plenteous sign of coming of real estate bubble and asset price inflation.
· Secondly is the protection enjoyed by these private and investment banks. Booming economic conditions craved these banks to take higher risks, among which most of the deals of these banks were highly leveraged transactions. However these risks turn out to be evil for these high flying banks as they didn’t get enough capital in support of their high risk investments.
· Last but not the least reason which I think would be failure of top tier management to provide guidance to their deal makers. Greed took over and rest is history.

Though today symptoms of current events are similar to that of great depression, but according many economists making their comparison is misleading. Though current time hold similarities with great depression of 1929-33, but outshined by certain differences.
For instance in 1930, Hawley Smoot act came along in decade of restrictive tariffs and international disharmony. However today global turmoil is characterized by prominent degree of free trade and global cooperation. The era of 1929-33 was the one saw the absence of shock absorbers like such as social security and deposit insurance which could safeguard people from economic crises.

In the 1930s, some of the world's largest economies—Germany, the Soviet Union, Japan, and Italy—were run by leaders hostile to the very notion of market capitalism. Today, U.S.-style market capitalism is under assault from self-inflicted wounds, and Germany, Italy, and Japan (Russia, not so much) are working with the United States to cope with a common problem.
Apart from this the policies of Federal Reserve differ in both the periods. 1930’s policy was “downturn as a force for good”. Liquididate labor, stocks, farmers, so that people will work harder and live more moral lives. However in today’s crisis Federal Reserve is making full efforts to increase liquidity in stocks, to farmers and real estate.

It’s true that current crisis are nowhere in comparison to great depression, but still we need to put a full stop over these ongoing crises, which is hard-hitting the nations worldwide. The another difference which can be drawn over these two crisis is that in present day we have president Barack Obama who promises to solve the crisis . The methods which he plans to initiate are to follow policy of creation of jobs and more spending by American people. Apart from this we have seen bailout packages already becoming the breaking news. Therefore it can be said roots of current crisis are same but nature is totally different. We can hope to see a better future in near term.