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This is NOT the Second GREAT DEPRESSION!! Here is Why:
Folks,
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Our world has sped up exponentially since the 1930's. Everything is instant and the markets now react (or overreact) 100 times faster then they did before. The plus side is that the markets can also react positively is this fashion as well.
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The Dow Jones industrial average is down more than one-third from its high a year ago. The stock market lost 89% of its value from its peak during the Great Depression. During the most recent bear market, from March 2000 to October 2002, the market lost about 50%. Same for 1973-1974 and two other times since 1937.
With stocks down 36%, we are closer to a bottom than a top. Most, if not all, of the bear damage may have already been done.
.
.
Our world has sped up exponentially since the 1930's. Everything is instant and the markets now react (or overreact) 100 times faster then they did before. The plus side is that the markets can also react positively is this fashion as well.
.
The Dow Jones industrial average is down more than one-third from its high a year ago. The stock market lost 89% of its value from its peak during the Great Depression. During the most recent bear market, from March 2000 to October 2002, the market lost about 50%. Same for 1973-1974 and two other times since 1937.
With stocks down 36%, we are closer to a bottom than a top. Most, if not all, of the bear damage may have already been done.
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- One big difference is that during the Great Depression, there was no deposit insurance, causing a huge run on banks (watch out for bank runs England-deposit insurance there is a paltry $4,000). As customers withdrew their money, you had banks failing right and left. About 7,000 and 8,000 failed between 1929 and 1932. Today, 13 have collapsed, with 117 on the government's watch list. Yes today's banks are much bigger than the banks of the '30s-but so far, absent Washington Mutual and Wachovia, the big banks have not toppled. And these two banks are being taken over by bigger players.
- Industrial production dropped by 45% during the Great Depression. So far it is down 1.5% this year, led by the downturn in the automotive sector. US manufacturing remains in a recession, however.
- During the Great Depression, the whole economic policy stance then was bad, analysts note. The Federal Reserve was designed to come to the aid of banks that were in trouble. For some reason, it didn't. Now it is.
- Gary Becker, a Nobel prize-winning professor of economics at the University of Chicago, notes in a Wall Street Journal editorial that although we are in the most severe financial crisis since the Great Depression of the 1930s, this is a far smaller crisis, especially in terms of the effects on output and employment.
- Becker reiterates that the United States had about 25% unemployment during most of the decade from 1931 until 1941, and sharp falls in GDP.
- Becker says with efficient auctions, the government may well make money on its actions, just as the Resolution Trust Corporation that took over many savings-and-loan banks during the 1980s crisis did not lose much, if any, money.
- Becker adds too that the crisis that kills capitalism has been said to happen during every major recession and financial crisis ever since Karl Marx prophesized the collapse of capitalism in the middle of the 19th century. He says he is confident that sizable world economic growth will resume before very long under a mainly capitalist world economy.
In response to assignment: Wall Street crisis and you
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