Recession refers to a state where the great domestic Product of a country shrivels for two or more than two consecutive financial quarters. Recession can also be said to be an extended duration of slow economic growth and decline in economic activities. The factors that caused the Great Recession were quite similar to those that caused the Great Depression unlike other post was recessions, which resulted from the Fed Tightening to reduce inflation.
During the 1930s, gold backed the currency, but the government banned all the transactions using gold and ownership of gold by the private sector. This led to massive deflation, which eventually resulted to a decade of slow growth and massive unemployment. The modern-day currency is backed by a fiat currency, which enables the Fed to create money synthetically by raising financial institutions’ deposits, which in turn it lends to the public. During the 2008-2009 periods, the Fed, allowed @2.1 trillion printing of money in efforts to rejuvenate the economy and save the financial institution (Almunia 225). This resulted in excess money in the economy, resulting to inflation and the eventual collapse of the stock prices.
One of the most notable comparisons of the Great Depression and the Great Recession is the failure of the financial institutions. During the Great Depression of the 1920s, more than 9000 banks collapsed, which resented more than half of the banks. During the Great Recessions of the 2008-2009, only 57banks failed, which represented 0.6% of all banks. However, it is important to note that the banks during the Great Depression period were small with weak controls unlike the current Mega-banks.
During the Great Depression, the employment rate hit a high of 25% while the unemployment rate during the recent recession hit a highest of 10% for a short period then went down to 8.50%. In addition, the stock markets lost 90% of its value during the Great Depression, but the Great recession lost 50% of the stock values (Almunia 250).
The economy is currently improving with economists believing tha the recession is over, however, lessons learnt will enable policy makers to avert any possible recession in the future.
Almunia, Miguel, et al. “From great depression to great credit crisis: similarities, differences and
lessons.” Economic policy 25.62 (2010): 219-265.