Compare and contrast the great depression and todays great recession - Essay Example

Therefore, it is relevant to correlate historical experience of 20s with the current processes in the economy. In order to show distinctions and parallels between the Great Depression and the Great Recession, it is required to analyze the reasons of these periods in the American history, draw parallels between them in order to develop lessons for the future practical implementation of successful strategies and avoid mistakes of the previous years. Another supposed reason for the Great Depression is often found in banks collapse.

When investors took away their money from the banks to pay debts, nearly 9,000 banks failed in less than 10 years. Therefore, a credit crisis occurred. Those individuals who had bank accounts lost their savings and businesses did not have an ability to expand. Furthermore, this drastic economic situation was also spoiled by a slow process of recession. People were afraid of spending their money and many companies had to decrease their production levels. As a result, a great number of unemployed people occurred.

The American government managed to correct the challenging situation and introduced The Smoot – Hawley Tariff act of 1930. In accordance with this Act, American companies could easily trade with international companies and pay fewer taxes. Still, the government could not resist dust and drought storms, which devastated agricultural sector. As a result, the prices for food were high and poverty rates increased as well. As far as we can see, there are many parallels which can be found between the Great Depression and today’s Great Recession.

Let us focus our attention on the reasons that triggered the Great Recession. In 2008 only 19 banks have experienced bankruptcy. In 1930, 744 banks failed. In 30s, banks were protected by the FDIC (Federal Deposit Insurance Corporation) (Chee-Heong Quah and Crowley, 2009). Still, this system is more beneficial for banks nowadays. In