Jun 182012

understand the economic depression When we talk about economic depression, we can never leave out The Great Depression that surfaced in 1929 and its effect could be felt for no less than 10 years. After that period, quite many depressions were faced but nothing ever matched the 1929 Wall Street crash. It was one time when US GDP went really low and unemployment percentage went very high.

So, exactly what results in an economic depression? If we take the example of the Great Depression, we will find that the culprit behind it was monetary policies that were contradicting. While Federal Reserve wished to pull stock market to a little low, it ended up with a crash and as it so happened, interest rates kept going up only to maintain gold standards. No one seemed eager to put fuel into the economy by supplying money and as a result, the fall was 30 percent.

As we see it normally, people expected the rates to go lower and hence, purchases were put to a halt for a certain period of time. This caused great trouble and a large percent of people ended up losing their homes too!

This clarifies it that when an economy spirals downwards, there is no stopping it in an easy way. So, now that we know that economic depression can start from something quite casual but big, it is clear that in present times, falling into one such depression is almost impossible. One of the good reasons is that Central bank, as well as Federal Reserve, are aware and understand various monetary policies that are beyond the scope of this informative article.

One thing we need to understand is that we, being humans, mostly learn from our mistakes immediately, especially if the outcome is seriously drastic. So, the 1929 Depression made us analyze what went wrong and how it should be avoided in future. So, far, no such situation seems to stir up and this can give us some peace of mind that we are safe from such a situation to a great extent.

  2 Responses to “Understand the economic depression better”

  1. […] U.S. economy has seen it all and to the maximum extent. When compared, the impact of the great economic depression was worse. However, if considering recovery from recession, the great recession is a possible […]

  2. […] from the Labor Department showed that the nearly 9-year-old economic expansion that followed the Great Recession remained on […]

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