The world economic crisis of 2007 & The great depression

The past 6 years have been a financial chaos, people losing their home, children dying of hunger, massive job lost, big companies falling and so many horrible things declaring a lost war of the world against the economy. But isn’t all of this familiar?  Haven’t we passed through a similar situation? If your answer is yes, then you are correct, do you remember the 1930? May be you weren’t born at that time, but I’m sure you’ve heard this name, Great depression. Though it was a financial recession that occurs many years ago, is consider as a point of comparison to the actual crisis.  

The great depression and the world economic crisis of 2007 have often been thought by many economists as different, but there are considerable similarities between them. These similarities become apparent when one considers the political scene which preceded them, the bailout of banks by national governments, and the collapse of large financial institutions.

Let’s go back in time and see some political/economical scenes which preceded them: September 4th, 1929; fall in the stock prices leading to a stock market crash in October 29 1929. September 11th, 2001: a series of terrorist attacks were coordinated to strike the areas of New York City’s Twin Towers and Washington, D.C’s Pentagon. December 2007 Housing bubble: 23.1% of all U.S. homes, were in negative equity which ended with a stock market crash in 2008. All of these events could be seen as the cause of both financial crisis of course, the term “financial crisis” encompasses many different classes of episodes, including banking crises, currency crises, debt defaults, and securities market crises, to name but a few (Kindleberger, 1978: 21–2)..

The housing bubble in 2007 made investors take out their revenues from many U.S banks. This created a trust situation which later reflects with the Banks bailout. Many bankers were concerned about this. They tried to capture all the investors they could to their banks. The U.S government trying to avoid a situation like the great depression, helped bankers giving them funds and being their first investors, though it did not help. World trade collapsed faster than world incomes, and the trade decline was highly synchronized across countries, so it was a matter that not only concerned U.S . As seen in the great depression, in 2008 occurred the exact same thing.

Allow me to explain the logic in banks bailout. It’s pretty simple, a bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities. This is made worldwide. For example, banks in Europe have deposits in US banks, but Asia deposits in Europe’s banks, and Latin America’s banks deposit in European’s banks also. Then what would happen if US banks bailout? Great depression is what would happen, 2007-2012 economic crisis is what would happened.

A perfect way to expose the resemblance between them is with a histogram. As you can clearly see, the period of 1920-1930 the gross public debt raised as same as the 2000´s

In conclusion, they are both very similar.  They both affect society badly, turning the world into an unsafe place for future generations. What I’m concern is that with all the similarities for what caused them, how can we be sure that they don’t end the same way? The Great Depression ended when World War II, started does it mean that the world financial crisis of 2007- 2012  will be the event that preceded World War III?

REFERENCES                                                            

·         Property Market Summary (Data Included from 1985 to 2010), July 2010

·         The Economist, June 16, 2005, "After the fall."

·         America's foreclosure plan: Can’t pay or won’t pay?, Paragraph 5, The Economist (February 19, 2009).

·         "Chapter 1.1: 'We Have Some Planes': Inside the Four Flights" (PDF). 9/11 Commission Report. National Commission on Terrorist Attacks Upon the United States. 2004.

·         Alavosius, Mark P.; Rodri

·         John A. Garraty, The Great Depression (1986)