Some little known facts about the Great Depression:
On "Black Tuesday," October 29, 1929, the market lost $14 billion, making the loss for that week an astounding $30 billion. This was ten times more than the annual federal budget and far more than the U.S. had spent in WWI. Thirty billion dollars would be equivalent to roughly $377 billion today.
The Dow Jones market peaked at 381 on September 3, 1929, and bottomed out at 42 in 1932, which is an amazing 89% decline. It did not reach 381 again until 23 years later in 1955 (that doesn't include inflation losses).
Causes of the Great Depression are widely debated but typically include a weak banking system, overproduction, bursting credit bubble, and the fact that farmers and industrial workers had not shared in the prosperity of the 1920s.
During the worst years of the Depression (1933-1934) the overall jobless rate was 25% (1 out of 4 people) with another 25% taking wage cuts or working part time. The gross national product fell by almost 50%. It was not until 1941, when WWII was underway, that unemployment officially fell back below 10%.
Today the typical household has two wage earners, so even a 25% unemployment rate such as occurred during the Great Depression may not mean the same thing as it did in the 1930s.
Scholars estimate that nearly 50% of children during the Great Depression did not have adequate food, shelter, or medical care. Many suffered rickets.
Some scholars find the 2009 economic condition more troubling than that of the 1930's Great Depression because debt in 2009 includes not only stocks but also millions of homes, property, local governments, and entire nations. Also, in contrast to the 1930s, the U.S. is now a debtor nation and more households in the U.S. are in far greater debt. By 1933, more than 11,000 of the nation's 25,000 American banks had shuttered, victims of the Great Depression
At its highest point during the Great Depression, unemployment reached 25% (in 1933).
The ( 1930's ) Depression in Europe
European nations got used to borrowing money from the U.S. to stabilize their own economies. As they did, the major European nations slowly started to repair themselves.
Due to increases in technological advancements an American worker in 1918 could produce twice as much as a European worker, thus giving the U.S. the ability to sell their manufactured goods for less.
Wall Street Oct. 29, 1929
With Black Thursday the U.S. stock market started to collapse. Convinced that the disaster was made worse by the easy access to credit that investors used to buy stocks on margin, the government decided to set a higher interest rate on borrowed money.
As a result, the European economies which were dependent on U.S. lenders, suddenly found themselves out of money. Lenders in European nations thus raised their own interest rates and made it increasingly more difficult for small business owners and farmers to take out a loan.
This was the beginning of the Great Depression in Europe. As the stock markets were bottoming out, unemployment was rising, then also came the rise of despots and extremism. In January 1933, Hitler cemented his power and became Chancellor of Germany. Mussolini, whose reign over Italy started in the mid 20's, consolidated his power throughout the 30's into World War ll.
In June 1930, Congress passed the Smoot Hawley tariff, steeply raising import duties to protect American manufacturers from foreign competitors. The tariff increase had little impact on the American economy but it plunged Europe further into crisis.
In 4 years, the output of the U.S. and Europe would decline rapidly:
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Change in economic indicators 1929--32
United States Great Britain France Germany
Industrial production --46%----- --23%------ --24%-- --41%
Wholesale prices ------32%----- --33%------ --34% -- --29%
Foreign trade ----- 70%----- --60%------- --54%-- --61%
Unemployment ---- +607% ----+129%------ +214% +232%
The Great Recession of 2008-?
Uranus Square Pluto ( 2008- 2019 ) - 10 Degree Orb
April 22, 2008 ( 10 degree orb )
Aug 6, 2011-within 1 degree
June 24, 2012- Exact
Sep. 19, 2012
May 21, 2013
Nov. 01, 2013
Apr. 22, 2014
Dec. 14, 2014
Mar.17, 2015
Dec. 26, 2015 ( 1.5 degree orb )
Aug. 15, 2017 ( out of 10 degree orb )
Jan. 02, 2018 within orb-6 degrees 13 minutes
May 03, 2019- Again, out of 10 degree orb
The current global financial crisis is considered by many economists to be the worst since the 30's. It resulted in the collapse of large financial institutions, the bailout of the banks by national governments, and downturns in stock markets around the world. The U.S. stock market plummeted almost 60% from a high of over 14000 in 2007, to a closing low of 6,547 in March of 2009. Investors facing retirement had to face the fact that a decade of retirement savings had now been lost.
The financial crisis was initially linked to reckless mortgage lending practices by banks and the securitization of real estate in the U.S. A worldwide credit based boom fed a speculative bubble in real estate and equities which served to further reinforce risky lending practices. The emergence of sub-prime loans exposed other risky loans and over- inflated asset prices and the precarious financial situation was made more difficult by increasing oil and food prices. With the fall of Lehman Bros on Sept 15th, 2008, a major panic broke out in the inter-bank loan market. As share and housing prices declined, many large investment and commercial banks in the United States and Europe suffered huge losses and faced bankruptcy, resulting in a massive government bailout of the banks.
The first bank bailout bill was defeated. The public, some of whom had seen their retirement savings cut in half, were upset at the idea of financial institutions getting bailed out. Others who had seen a loss of real wages and purchasing power over the previous 30 years and in some cases were being foreclosed upon would ask why the government would bail out big banks, yet allow them to fail. Phrases such as " moral hazard" surfaced, referring to the ethical questions raised by government bailing out individuals and institutions who entered agreements to assume certain risk. Another phrase that emerged as to the efficacy of bailing out huge financial institutions was "too big to fail." Implicit in the phrase "too big to fail" is the question, "Should financial institutions become so big that government has no choice but to bail them out to avert a major economic collapse?" Unfortunately as a result of government action, the more sound banks were absorbed and consolidated with the more insolvent banks, and the risk involving " too big to fail" is greater now than it ever was.
Two weeks after the fall of Lehman Bros., on October 3, 2008, the Congress enacted the landmark $700 billion bank bailout bill. Whereas it took almost two years for the aftereffects of the 1929 crash to sink into the economy, in a little over a year, 5.7 million jobs were lost in the U.S. and the downturn was firmly underway.
A global recession has resulted in a sharp drop in international trade, rising unemployment, and slumping commodity prices. The housing market is suffering to this day, resulting in evictions, foreclosures and prolonged vacancies. At the time of this writing, it is said that there are two and half years of housing inventory to be sold. In some states, such as Nevada, it is estimated that in February 2010, over 50% of the current mortgages were under water. This has contributed to the failure of businesses, declines in consumer wealth estimated in the trillions of dollars, and a decline of economic activity leading to a severe global recession. Though this recession has driven down interest rates to 60 year lows, tightening credit practices have made new mortgages almost impossible for all but the most high end customers.
To this writing, over 394 U.S. banks have collapsed and have been taken over by the Federal Deposit Insurance Corporation. The list is as follows:
2008- ---------------26 banks
2009----------------140 banks
2010----------------157banks
Up to 9/7/2011----71 Banks
Of those 394 banks, over 73 have over 1.0 billion in assets. Not mentioned among these are AIG, an insurance company that was bailed out because to let them fail would have stymied the international flow of world commerce. The Federal government also had to bail out mortgage giants Freddie Mac and Fannie Mae from losses as result of their dubious lending practices.
Toward the end of President George W. Bush's second term in office, the government did several things to stop the bleeding and try to put the country on the path to recovery. The government gave certain banks and other financial institutions considerable amounts of money from its Troubled Assets Relief Program ( TARP ). These loans were expanded under the new Obama administration. The hope was that the money would stabilize the banks and that the banks would start scaling up their lending, but the banks ended up using the money to build up their capital and make their balance sheets healthy again. President Obama in his first year initiated a $700 billion stimulus, a third of which were tax cuts. The U.S. executed two stimulus packages totaling a trillion dollars during 2008 and 2009. The U.S. Federal Reserve, the European Central Bank, and other central banks responded by buying $2.5 trillion dollars of government debt and troubled private assets from banks. This was the largest liquidity injection in the history of the world.
Over the next two years, the federal reserve engaged in two rounds of quantitative easing (QE I and QE II). A central bank implements quantitative easing by buying longer or short term bonds (depending on the circumstance) or buying financial assets from banks or private businesses, all with newly created money.
After two years of stimulus plans and two rounds of Quantitative Easing, there is great disagreement about their effectiveness, with little results to show, and no way to demonstrate how much worse it might have been if stimulative measures had not been taken.
Some conclude that it would be foolish to cut government services at a time of a severe downturn as that would only exacerbate the current unemployment problem. While they acknowledge that there has been no significant recovery, they still conclude that the problems ( the magnitude of which was the greatest of any global downturn since the Great Depression ) would have been considerably worse without any stimulus, and that the stimulus didn't go far enough, and a greater stimulus was necessary to jumpstart the economy. Others claim the stimulus has been completely ineffective, has created debt that will be passed on to succeeding generations, and they seek greater cuts in government spending regardless of the immediate unemployment consequences.
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