Transcript Great Depression Great Recession

Great
Depression
Great
Recession
National Bureau of Economic
Research (NBER)
 Defines
the unofficial beginning and
ending dates of national recessions
 Definition: „a significant decline decline in
economic activity spread across the
economy, lasting more than a few
months, normally visible in real gross
domestic product (GDP), real income,
employment, industrial production, and
wholesale-retail sales"
 47
recessions dated since 1790
 Reasons:
-Regulations
-Policies: fiscal, trade, monetary
-Cycles: agriculture, consuption, investment
-Health of the banking industry
 External
shocks to the economic system
(wars , drastic weather chances, banking
crisis) result in recessions
Early recessions
 Panic
of 1797, 3 years
 Deflation from Bank of England (land
speculation bubble bursted)
 It disrupted commercial and real estate
markets in US
 1815-21 depression, 6 years
 Followed the 1812 war, high inflation rate
 Included Panic of 1819
 Unemployment, real estate prices
dropped, agriculture and manufacturing
down
 1839-1843
recession, 4 years
 Long period of deflation and massive
default on debt
 Panic of 1873 and the Long Depression, 5
years+5 months
 Jay Cooke&Company(largest bank in US)
failed, bursting the post-Civil War bubble.
 Coinage Act of 1873 caused the drop in
silver price (mining suffered)
 Deflation and Wage cuts Great Railroad
Strike in 1877
 Long Depression 1873-1896
 1882-85
recession, 3+ years
 Price depression
 Railroad construction declined
 Iron and steel industies affected
 Included Panic of 1884
 Investments dropped (railway industry)
 Depression of 1920-21, 1,5 years
 Short but painful
 Highest deflation rate in US history
 Post -World War I recession
Great Depression 1929-1933
 Lasted
4 years + 7 months
 Stock markets crashed
 US banking collapsed
Causes/theories
 Debt
deflation – prices and income fell
20-50%, debts remained same dollar
amount
 Differences in wealth and income –
productivity increased at a higher rate
than wages
 Financial institutions structures –
structural weaknesses: unsufficent
reserves, investments in stocks, risky
loans
 Gold
standard- spread the recession,
no flexibility
 Expanding government – taxes, tariffs,
regulations
 International trade – debts not paid
back, tariffs hindering trade
 Population- decreasing population led
to underconsumption
 Productivity – industrialisation
Results
 Unemployment
up to 25%/37%,
50%/80%
 Industrial production down by 45%
 Homebuilding dropped 80%
 5000 banks out of business
 GDP fell 30%
 Stock market lost 90% of its value
 Average
income reduced by 40%
 9 million savings accounts wiped out
 At least 2 million homeless people
 25% of all schoolchildren were
malnourished
 Emigration vs immigration
 Mexican immigrants deported to Mexico
GD vs GR
 The
stock market did not fall as far
 Supply of money fell 25% during GD
 Unemployment rate was much higher
(25%)
Late 2000 recession, The Great
Recession 2007-2009 (2010)
 Sub-prime
mortgage crisis
 US housing bubble collapsed
 Global financial crisis followed
 Oil and food prices soared
 Financial institutions failed: Bear Sterns,
Fannie Mae, Freddie Mac, Lehman
Brothers, AIG
 Automobile industry in crisis
Causes
 Public
monetary policy in one (no
supervision, regulations to protect
pension/savings etc) hand and
 Private financial institutions practices
on the other hand (risky lending,
shadow banking)
Results
 Political
instability – protest movements
 Policy responses – bailouts
 Pension loss – 30/90%
 Legislation – stimulus plan
 Federal Reserve – loans
 Job losses – officially appr. 10%
Ongoing hardship
 persistent
high unemployment remains
 low consumer confidence
 continuing decline in home values
 increase in personal bankruptcies
 escalating federal debt crisis
 Inflation
 rising gas and food prices.
US bailouts
 700
billion USD – bank bailout
 787 billion USD – fiscal stimulus package
 All together 14295 billion USD