Comparing Current Economic Crisis And Great Depression Economics Essay

Comparing Current Economic Crisis And bulky stamp Economics try step forwardComparing online frugalal crisis and enceinte De vexion. The on-going U.S sparing crisis that begun noble 2007 has plunged the country into a very dangerous phase in the U.S frugal performance (Hilsenrath and Paletta, 4). The smashing correct in stock securities industry which trim down spending and riches among plurality resembles to the great economic clinical get alongoff (Katz, 10). The Great Depression was an economic recession that eroded stock market wealth and eventually spilled to other sectors of the frugality (Hilsenrath and Paletta, 4). During the Great Depression, it has been recorded that Dow-gold ratio lessen substantially to a downcaster of 47 percent, intimately similar to the 42 percent experienced in the rate of flow crisis. The enraging crisis also foresaw crippling of most fiscal institutions due to unskilled loans and many banks had to freeze lending from 1929. on that point has been similar experience in the current crisis as the credit markets atomic number 18 on verge of collapsing. In 2008, sum credit in pecuniary institutions has reduced by more than 250 percent while bad debt level has g hotshot below 350 percent market (Waggoner, 1).The two crisis perplex shown similarities when comparability the trends in real estate. Like in the 1929 Great Depression, at that place has been a great overvaluation of the real estate. Problems in real estate hit been the main factors contributing to the current crisis (Delong, 2).Under the global financial system, sawhorse mark is converted with gold which means all the over currencies be further converted to gold or the Pound. However, this has become completely different since the dollar which is converted to gold has not been able to meet monetary conditions for renewal to gold touchstone which has destabilized world monetary system (Petrov, 2). Government reception to the crisis is similar. In the current crisis, the United States government activity has signed a multibillion economic stimulus package totaling to $700 billion. This was a similar st regularizegy which was taken in the Great Depression but in both economic crises, the economic stimulus package has not lived to its expectations (Stewart, 2).It is still acceptable to say that the current economic crisis resembles the great economic first gear of 1929 because the high rates of unemployment that was witnessed during the depression has also affected the United State parsimoniousness where many hoi polloi have remained jobless and retrenchment rates have been at its peak. The current rate of unemployment stands at 6.1 percent which is even below the 1992 rate which was 7.8 percent. alike those still employed are under fear of loosing there jobs people anytime if efforts towards observey does not succeed (Waggoner, 3). It is said that unemployment rate hit 10 % for the past two classs. Research shows that the job crisis in the States reached a point where both the underemployed and unemployed stopped searching for jobs and the rate of those looking for full time job but they could only furbish up part time job reached 17.4 %. The rates of job crisis in America is said to be the highest figures in the world and continuity of such(prenominal) trends in America will certainly change the new gen seasontion and the sprightliness course (peck, 2).The economic crisis in America forced president Franklin D. Roosevelt and the relative of the time to create FDIC with an aim of providing the federal state guarantee of fastens so the inception of FDIC in America granted people with certain criterion of capital guarantee of their property and those who deposited their finance with FDIC were very certain that their money was safe even if bank failure occurs (FDIC, 1).How U.S economic crisis is different from the great depressionWhat need to be reflected first is that the 1929 occu rrences were termed as a depression while the current situation in America is a recession. Scholars have said that the current economic crisis in United States is unlikely to climax into the 1929 great economic depression. Some of the notable differences between the two complicate the followingDuring the economic depression the dollar was devalued relative to gold. Currently, there is absence of gold standard that serves as a restriction to the core of money supply that can be expanded since the gold standard was abolished in 1971 thereby making the restriction of the dollar being fastened to gold standards a nightmare in today world (Krugman, 3).During Great Depression, America economy was not ridden by bad debts as it is today. Currently, U.S economy has introduced credit cards that never existed in 1929. Similarly national debt and deficits in money available for spending was significantly lower than it is today where Americas debt is largely owned by foreigners who may eas ily devalue the dollar by means of selling dollar reserves and treasury bonds a decision that may lead to an international war.Although the economic crisis has caused pain in America economy for fount collapse in financial market, overvaluation of real estate, perish in energy prices, collapse of industrial centers and existence of recession in many sectors of the economy there are hopes that some cities will recover much better than before the occurrence of financial crisis since there are almost fifteen areas in the economy that are still expanding such as oil and natural resources (Florida, 4).Similarities between japans crisis of mid-nineties and the U.S Economic crisisThe financial market stress that hit American economy resembles Japanese market crisis after 1997. Its recorded that various banking institutions and securities greatly affected financial markets thereby leading to increased crisis in the banking system of the two countries. Likewise addition market was greatly hit with no indications of bottoming out which is similar to American real estate market. It is also indicated that great losses were noted in the financial market where cases of bad loans were prevalent and this is said to have held the convalescence of Japan economy (IMF, 1).In both economies, the economic crisis led to decline in consumers intake habits since prices for goods were unaffordable thereby making consumers to minimize their spending authority with a view that in the just future prices will fall due to decline in demand. The period between 1980, Japanese monetary authorities flooded markets with liquidity so as to enhance the backup to cope up with the rising value of Japanese yen. The excessive pass of money in the economy by 1990s led to quick increase in the market value of equities and land since many investors say their finances in real estate business (Posen, 6).Differences between japans crisis of 1990s and the U.S Economic crisis.Although the crisis in America and Japan were spearheaded by weak jurisprudence and easy credit, insurance makers argue that Japanese crisis looked larger than the American one because Japanese crisis stretched and affected the asset prices which were believed to be three to four quantify bigger than the American (Peck, 2). The banking crisis in the two economies shows that the American crisis was quite atypical since it shows household profligacy whereas the Japanese banking crisis comprised borrowing of finances by firms. In Japan for instance the sum bank losses on bad debts was almost 20% of the gross domestic product between 1993 to 2005 (Dick, 2008).Trends shows that policy response to the crisis in America were quicker and this made America belong into the second of and manageable fiscal stimulus package. The U.S took quicker steps to restitute the banks through the use of public funds within one year while Japan took eight years to recapitalize its banking systems (Mikitini, 2000).The lesson learnt from Japanese economic crisis is that the purchase habits of consumers changes negatively when the rate of inflation is very high thus consumption rate of consumers decreases because they anticipate that prices of the products and services will fall in the near future where the will be able to buy at low prices and make some savings (Delong, 8)..It can be said that current governments came up with a number of policies to counter the effects of economic crisis for instance in America the federal reserve system kept the lodge in rates very low and expanded supply of money in the economy. Similarly many governments adopted the policy of reducing payments on hold loans. The strategy by federal government to inject more money into banking system in 2004 to 2006 helped increase the targeted federal money to more than the conventionality rate of 5% which reduced demand for houses thus fall in prices for houses hence solving the bubbles in the real estate management. Federal gov ernment also began bailing companies and banks that were collapsing such as GM, AIG and Chrysler and this helped to stimulate recovery of many banks and companies (Gene, 3). overwork CitedCavallo, Eduardo. Dealing with the crisis Lessons from America. Retrieved Marc 6, 2010 from http//www.voxeu.org/index.php?q=node/3358, 2009.Florida, Richard. How the Crash Will Reshape America. Retrieved meet 6, 20106 from http//www.theatlantic.com/ pickup/archive/2009/03/how-the- scud-will-reshape-america/7293/, 2008.Hilsenrath, Jon S., and Paletta, Damian. Worst crisis since 1930s with no end yet in sight. Retrieved March 6, 20106 from http //online.wsj.com/article/SB122169431617549947.html. 2008.Stewart, Heather. transnational monetary fund says U.S crisis is largest financial traumatise since Great Depression. Retrieved March 6, 20106 from http//www.guardian.co.uk/business/2008/apr/09/useconomy.subprimecrisis, 2008.Waggoner, John. Is todays economic crisis another Great Depression? Retrieved March 6, 20106 from http//www.usatoday.com/money/economy/2008-11-03-economy-depression-recession_N.htm, 2008.Peck, Don. How a new jobless era will transform America? Retrieved March 6, 2010 from http//www.theatlantic.com/magazine/archive/2010/03/how-a-new-jobless-era-will-transform-america/7919/, 2009.International monetary fund. Japans policy response to its financial crisis parallel with the U.S Today. Retrieved March 6, 2010 from http//www.imf.org/ impertinent/np/speeches/2009/031909.htm, 2009.Dick, K. Nanto. U.S financial crisis Lessons from Japan. Retrieved March 6, 2010 from http//fpc.state.gov/documents/organization/110816.pdf, 2008Shirakawa, Masaaki. Way out of economic and financial crisis. Retrieved March 6, 2010 from http//fpc.state.gov/documents/organization/110816.pdf,2009.Mikitani, Ryoichi. Japans financial crisis and its parallel to America experience. Retrieved March 6, 2010 from http//bookstore.piie.com/book-store/319.html, 2000.Tabuchi, Hiroko. Japans stationery d ecade cautionery tales for U.S. Retrieved March 6, 2010 from http//www.nytimes.com/2009/02/13/business/economy/13yen.html, 2009.Katz, Richard. Todays Americas financial crisis is not like Tokyos lost decade. Retrieved March 6, 2010 from ttp//www.foreignaffairs.com/articles/64823/richard-katz/the-japan-fallacy.Bank of Japan. Way out of economic and financial crisis Lessons and policy actions. Retrieved March 6, 2010 from http//www.boj.or.jp/en/type/press/koen07/ko0904c.htm, 2009.Posen, S. Adam and Mikitani, Ryoichi. Japans financial crisis and its parallel to U.S experience. Retrieved March 6, 2010 from http//www.amazon.com/Financial-Parallels-Experience-Institute-International/dp/088132289X, 2009.Federal deposit Insurance Corporation. Why FDIC was created in U.S. Retrieved March 6, 2010 from http//www.fdic.gov/about/learn/ instruction/why/index.html,2004.Krugman, Paul. Monetary policy. Retrieved March 6, 2010 from http//krugman.blogs.nytimes.com/2009/12/14/samuelson-friedman-and-mon etary-policy/, 2009.Foreign policy. conduce 100 global thinkers. Retrieved March 6, 2010 from http//www.foreignpolicy.com/articles/2009/11/30/the_fp_top_100_global_thinkers, 2009.Delong, J. Bradford. The great crash and the great slump. Retrieved March 6, 2010 from http//econ161.berkeley.edu/TCEH/Slouch_Crash14.htm, 1997.Beland, Daniel, and Francois vergniolle. Fighting big government. Retrieved March 6, 2010 from http//www.questia.com/googleScholar.qstjsessionid=LSyGk7VKC9CmgGkxbNp0mSm7LpLnv8K1tJY3jtmkhvJJGYsQ22pX-15042659751494505646?docId=5006720711, 2005.Smiley, Gene. Great depression and current economic crisis. Retrieved March 6, 2010 from http//www.institute.sk/article.php?3100, 2009.