Similarities, but Also Big Differences, Between Today's Crisis and 1930s
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This is IN THE NEWS in VOA Special English.
What began more than a year ago is often described as "the worst economic crisis since the Great Depression." The downturn is bad, but it would have to get much worse to compare to the nineteen thirties.
Next October will mark the eightieth anniversary of what is generally considered the beginnings of the Depression.
In just two days the Dow Jones Industrial Average lost almost twenty-five percent of its value. The stock market continued to drop until July of nineteen thirty-two. By then, the Dow was about ninety percent below its high reached in September of nineteen twenty-nine.
The Dow hit its all-time high in October of last year. Since last year the Dow has lost about forty percent of its value -- even more for the Standard & Poor's index of five hundred stocks.
Like the Depression, the current crisis also involves falling property values. American housing prices fell by almost seventeen percent in the twelve months that ended in September.
Housing economist Robert Shiller at Yale University has found that home prices fell by about thirty percent during the Depression. Then, as now, many people lost their homes because they could not pay their mortgage loans.
Today people borrow much more of the value of their homes than they used to. In fact, Professor Shiller estimates that ten million Americans owe more than their home is worth.
An estimated nine thousand banks failed during the Depression. Agencies that guarantee savings and supervise the financial system did not exist at the start. When banks failed, people lost everything. Fear of bank failures led people to withdraw their money, leading to more failures.
In nineteen thirty-three, Congress established the Federal Deposit Insurance Corporation. It currently guarantees bank deposits up to two hundred fifty thousand dollars.
Just twenty-two banks have failed this year. But among them was Washington Mutual, the biggest bank collapse in American history.
Possibly the best measure of an economic crisis is unemployment. The rate in October was reported at a fourteen-year high of six and one-half percent. Some think it could reach eight percent or higher. During the Depression, however, one of every four workers was unemployed.
President Franklin Roosevelt and Congress established agencies to employ people in public works. Yet employment did not completely recover until World War Two.
Policy mistakes increased the effects of the Depression. For example, the Federal Reserve let the money supply shrink. This meant there was less money available for lending to people and businesses.
In the current crisis, the government has been willing to spend freely; too freely for some critics. On Tuesday the Federal Reserve and the Treasury announced a new plan to provide eight hundred billion dollars to increase credit availability.
Before the Thanksgiving holiday on Thursday, the Dow and the S&P rose four days in a row for the first time in months.
And that's IN THE NEWS in VOA Special English, written by Mario Ritter. I'm Steve Ember.