October 21, 2008
The world is in the grip of economic meltdown. This is manifested by the nose-diving of stock markets beginning with the United States and followed by the European and Asian countries. In the US alone within the span of seven days shareholders lost nearly two and a half trillion dollars of wealth. The bankruptcy of the financial giants such as the Lehman Brothers has pressed the panic button that has sent the governments, investors, industrialists, businessmen and even the consumers into a phase of anxiety, uncertainty and fear.
The massive bail-out plan for the financial institutions to the tune of 700 billion dollars by the US administration has not restored confidence in the stock markets. The world seems to be on the threshold of an economic recession that may take disastrous form affecting the lives of billions of people all over the world. As the economy has become global, so the consequences of the recession also affect the entire world.
As the US has been the nerve-centre of the world economy, any adverse development in the US economy is bound to affect the world. This is not a new phenomenon, and the recent melt-down is not the first economic disaster that the US in particular and the world in general have faced. There had been periodic economic corrections in the form of short phased recessions in world economy. However, the US and the world had suffered the worst economic disaster in human history in the form of the Great Depression of 1929.
The Great Depression began in the US in the ominous month of October 1929, to be precise on October 24, known as Black Thursday when stock values dropped rapidly resulting in increasing uncertainty and panic among the stockholders who resorted to distress selling of their stocks on Tuesday, October 29. Thousands of stockholders lost large sums of money. Banks, factories and shops closed leaving millions of Americans jobless and penniless. Many people had to depend on the government charity to provide them with food. The Great Depression of 1929 affected almost every nation of the world.
The decade of 1920s was a period of prosperity in the US. Following the end of the First World War in 1918, the Americans who had followed a moderate life style desired to live in comfort and luxury. Hence, there was a huge demand for durable luxury items which were churned out of the factories. Moreover, there was increasing trade between the US and Europe as the war ravaged European countries increasingly depended on American products which gave tremendous boost to the US industries and business.
The new economic boom of the ‘Golden Twenties’ was manifested by the Jazz culture, women smoking, drinking and wearing short skirts and many young people spending their weekends away from their homes. The average American could afford to buy automobiles and household appliances.
As the industry and trade prospered, the stock market registered an upward trend which attracted even average American citizens who went on speculating in the stock market where big money could be made. Banks and other financial institutions were eager to expand their business by providing generous loans to the people not only to buy their houses, cars and household appliances but also to speculate in the stock market.
While industry and business prospered in the US, the farming community fared worst as the prices of the farm products fell about 40 percent and remained low through the 1920s. The farm depression forced a large number of farmers to rent their land or move out. Some of the farmers lost so much money that they could not pay the mortgage on their farm.
Besides the farmers, workers in the coal, railroad and textile industries failed to share the prosperity of the 1920s. While the industry and business gained by 65 percent, the average workers’ wage had increased only by 8 percent. As a result these workers could not buy goods as fast as the industry produced them. Many people had to buy them on credit. Later, workers had to reduce their spending to repay their debts which resulted in the decrease of the amount of money in circulation. This gradually affected the business.
Through the 1920s, the European countries recovered from their wartime economic crisis. With the reconstruction of their industrial infrastructure, the European nations began to increase their manufacturing capacity which resulted in their decreased dependence on the US manufacturers.
From 1925 to 1929 the average price of common stocks in the New York Stock Exchange more than doubled. Rising stock values encouraged many people to speculate. People began to buy more and more stocks, usually by borrowing money from banks and financial institutions in hope of making large profits following future price increases. Meanwhile, with the saturation of the domestic market and the reduction in the volume of trade, the US industry and business gradually began to lose profits.
The above factors led to the bursting of the ‘economic bubble’. As the saying goes, ‘everything that goes up has to come down’, the stock value that had reached the unrealistic height had to come down. However, the slide was not gradual but drastic and quick that took every one in the US by shock. Between October 24 to October 29, the value of the stocks in the New York Stock Exchange dropped so sharply that the American dream ended in nightmare.
The Great Depression that started in October 1929, incidentally during the Republican administration, continued till 1933 until Franklin D Roosevelt of the Democratic Party became the President of the US. During the intervening period banks and individuals with investments in the stock market lost large sums.
The Great Depression had disastrous consequences on the US economy and society. Nearly 13 million people became unemployed; industrial production fell by nearly 45% between the years 1929 and 1932; construction of homes dropped by 80%; about 9,000 banks failed with nearly 5000 of them going out of business. The bank failures wiped out the savings of millions of people.
The human suffering became a reality for millions of Americans with the continuation of the depression. Many died of disease and malnutrition. Thousands lost their homes because they could not pay the mortgage. A large number of families and young people wandered through the country seeking food, clothing, shelter and jobs.
The Great Depression of 1929 in the US led to a worldwide economic slump in the 1930s that affected almost all the countries. It resulted in a sharp decrease in world trade as each country tried to protect its own industries and products by raising tariffs on imported goods. To meet the disastrous economic consequences of the Great Depression, a number of countries changed their leaders and type of government. In Germany, poor economic conditions led to the rise of Adolph Hitler. Japan invaded China to increase her economic resources. Militarism and aggressive policies of both Germany and Japan eventually led to the Second World War (1939-45).
The twelve years of Republican administration in the US had witnessed both the prosperity and the Great Depression. In the presidential election of 1932, the American people overwhelmingly voted into power Franklin D Roosevelt of the Democratic Party who promised to lead the nation out of economic chaos and misery. Through series of measures such as ‘Relief, Recovery and Reform’, collectively known as the ‘New Deal’, Roosevelt succeeded in putting the US back on its economic feet. Roosevelt’s reassuring phrase to the American people was “You have to fear, fear itself.”
Through the New Deal Programme, the US administration under the able leadership of Roosevelt, besides providing immediate relief to the affected people, aimed at increasing agricultural and industrial production and reform the Banking system. The grateful nation went on electing Franklin D Roosevelt for four consecutive terms, a record for any US President.
The present economic melt down that began in the US with its ripple effect throughout the world is an echo of the Great Depression of 1929. There are certain parallels between these two phenomena. As in the case of the Great Depression, the present economic crisis in the US has set in motion during the regime of the Republican President, George W Bush. The month of October seems to be ominous in both the cases. Failure of the banking and financial institutions followed by the crash of the stock markets are the common factors that distinguish both the economic disasters. Under these circumstances, it may not be out of place to predict that the American people may elect Barrack Obama of the Democratic Party as the next US President in the November elections.
It is said that ‘History repeats itself’. Further, it can be also said that ‘Those who do not learn from the mistakes of the past are bound to suffer the consequences”. Let us hope that the world leaders will collectively seek solutions to this economic crisis and spare the world from the economic catastrophe that may lead to mssive unemployment, despair and unforeseen human tragedy.
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