The Parallels of the Current Economic Crisis and the Great Depression

There are few parallels between the current economic crisis and the Great Depression.

• The Depression began in 1929, spanned a total of nine years, with two deep recessions. The current recession began in December 2007, and at this point is only a year long.
• During the Depression, the Dow Jones Industrial Average plummeted 91 percent over a three-year period. In contrast, at the end of 2008, the Dow had fallen 38 percent from its high in October 2007.
• Unemployment during the Depression: 24.9 percent. Today: under 10 percent.
• During the Depression, nearly 12,000 banks shut their doors. The current banking crisis has resulted in less than 100 bank failures.
• In fact, runs on banks are a thing of the past, thanks to deposit insurance backed by the FDIC. Which we know has been increased to $250,000 per account holder.

Having learned valuable lessons from the 1930s, today’s government and Federal Reserve are taking a more active role in the current crisis than the Hoover Administration did at the onset of the Great Depression. Today, bailouts, loans, interventions and rate cuts are all examples of a vastly more active approach taken by policymakers.
I will have to say that one similarity between the Depression and the current situation is a high level of uncertainty among investors and bank depositors. Fortunately, due to the more advanced communication tools available today, confidence can be restored more easily.

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

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