1929 vs. 2008

While we never lived through the Great Depression, many of us can remember the 2007 recession that caused so much trouble in the US and international economies. So, I was wondering (in addition to wondering about how I was going to get my last blog post in on time) how the two of them compared. Clearly, the Great Depression was far worse in terms of statistics and in lasting cultural effects, but they actually had some major similarities within their causes.

Domestic Causes:
While the Great Depression was caused by many different things, as we have talked about in class, one of the major causes was the overproduction of industrial goods. As factories and corporations hired more workers and expanded ever more into the economy, they did so at a risk. These companies were living on borrowed time. They depended on the continued growth of the market, and when one single sector slowed down, the entire economy collapsed. The same can be said for the Recession of 2007. The housing market and real estate market was the driving force behind the expansion in the beginning of the 21st century. Banks, realizing the money that could be made from mortgages and loans to homeowners, made continually more risky loans to consumers. The rest of the market followed suit, selling securities backed by these risky loans. When the housing market collapsed in late 2006, the result was catastrophic for the interconnected economy.

International Causes:
The international loan system that emerged from the ashes of Europe in the 1920's created underlying instabilities in the world market that ended up contributing to the Great Depression. Once the markets failed in the United States and around the world, the loans that were designed to keep the Allies and Weimar Germany afloat ended up shrinking the credit pool of the world and making recovery even more difficult.
In 2007, the international failure of major banks, especially in the major economic members of the EU Eurozone, contributed greatly to the economic recession. Because less international capital was available, exports and international trade decreased dramatically. This impacted manufacturing all around the world, only adding to the banking and financial chaos that ran rampant from 2007-2009.