Compare the great depression and to the great recession Essay

Compare the great depression and to the great recession - Essay Example After the speculative boom of the 1920’s, Americans invested great amounts in the stock market. However, these were primarily financed through loans and almost two-third of the nominal value of stocks was represented by loans in 1929. Accelerated share prices motivated greater investment as people speculated that share prices would continue to escalate. Consequently, an economic bubble developed and the margin buying meant that investors would incur great losses if the market took a downturn. Similarly, the Great Recession resulted from speculation about mortgages and securities. It was a consequence of providing loans for homeownership to uncredit-worthy people. Mortgage loans were secured with mortgaged securities; so because of margin buying, banks were on the verge of bankruptcy when the market went into recession. Milton Friedman in his book, A Monetary History of the United States advocates that the Great depression was not a consequence of the economic cycles, tariffs o r the Wall Street Crash (Friedman and Schwartz). In fact, what thrust the country into depression was the collapse of banks and financial institutes. Apparently, the same can be said for the Great Recession. More than the actual effects of the Wall Street Crash of 1929, the psychological effects deterred investment in the capital markets. In turn, business security affects job certainty so that is why a decrease in capital investment led to a decrease in consumption. However, the Wall Street Crashes did cause bankruptcies, restriction on credit, failing businesses, rising unemployment, decreased money supply and the like. Likewise, the Great Recession led to a decline in international trade, increased unemployment, and dropping commodity prices. The chain of events from significant federal spending to tax increases only aggravated both the crises. Thus, the leaders targeted the scapegoats such as the Wall Street Bankers for the crises.