Generally, the failure of policymakers and the feeble financial system initiated the depression. However some economists believed with Keynes’ principle in explaining the “real cause” of the Great Depression -- capitalism (Rothbard, 2000). While capitalism may be to be blamed for the economic turmoil in the 1930s, the absence of enough evidence of the existence of capitalism in the modern economy absolves laissez-faire as the reason behind today’s persistent recession (Paul, 2002).
If the today’s economy is indeed depressed, large corporations and small firms will be the first entities to crunch. With the decline of market stocks, investors would likely resell shares or worse, discontinue investments on any business undertaking. Businessmen will depend on government funding to shore up businesses. However when companies can no longer allot for debt servicing, they may undergo bankruptcy. Besides, easy money is not a guarantee since banks are also not recession-proof (Ewing, 2010).
The weakening of the financial system would compromise productivity, and largely, labor force planning hence a massive unemployment. High rates of unemployment would result to decrease in demand as those who lost their jobs will cut costs of living. Furthermore, unemployment would result to homelessness, hunger, and/or other psychological and physical problems.
To come out of the economic depression, companies should not rely greatly on debt. Aside from the fact that seeking aid from financial services likely incurs bad debt, it eliminates the susceptibility of banks during crises which is not the case. This would also increase independence as they will have to write off toxic assets and make better use of other assets (Ewing, 2010). Banks can no longer depend on low interest rates since this will only increase the dependence of corporations on them. Also, companies should not always resort to a ...
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