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.
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