The growing number of newspapers and magazines citing similarities between the 1929 crisis and the current crisis raises questions about the relevance of these comparisons. Since the 1930s, the world has experienced other crises, but the magnitude that one is now experiencing, explains the key reconciliations. Strictly speaking, a crisis is a process of turning over the business cycle at its highest point, which interrupts the expansion phase and precipitates the economy into depression. Cycle theorists do not isolate the crisis from global movement, of which it forms only a small part. Thus, the 1929 crisis was a result of the stock market crash (from "Black Thursday, October 24, 1929), and the failure of a U.S. bank triggered the global recession of the 1930s, leading to the collapse of production, deflation, rising unemployment and significant contraction in international trade. Economists like Schumpeter spoke of a mere "bottomed out" at the time, against which they did not recommend state intervention, as they believed in letting the market regulate itself. Jean-Paul Fitoussi opined that "the lessons from the crisis of 1929 have been drawn." Indeed, as one will see, the current policy responses are very different, and laissez-faire has been replaced by a strong state interventionism.
In addition, the nature of the real economy has driven growth during the phase preceding the crash that is not the same, the boom in the auto industry had driven growth in the 1920s, while the real Estate is the leading sector for the growth period 2002-2007. The disconnect between changes in productivity gains and wage growth is, however, a striking phenomenon in the real economy common to both crises. The stagnation of wage income in 1929 leads to an overproduction crisis preceding the outbreak of the financial bubble. In 2006, given the stagnation of median income, the development of private debt fueled by mortgage credit was the main driver of U.S. growth after the Internet bubble burst in 2000.
After the First World War, the international financial system is fragile: the "gold exchange standard" was relevant, national currencies were connected to the dollar and the pound sterling, only for gold-linked currencies. In addition, financial pressures related to the settlement of the war debt and reparations by Germany was accompanied by tensions in the market for commodities and agricultural products. Indeed, Western countries encountered difficulties to recycle their industry and thus had to reduce their purchase of raw materials. The United States decided to reduce loans to Europe. Agricultural production in turn is seen to increase sharply due to the discovery of new techniques (extensionism). Demand does not increase and all were facing a real over supply of agricultural products as prices declined. In 20 years, an open economy takes place vis-à-vis the countries of Europe: a wave of protectionism emerges to limit the impact of new competition.Against this background of over production that will break the 1929 crisis that can be termed a crisis of production.
At present, the economic and financial system is different, it is rather the result of a strong liberalization. Excess liquidity in the financial world realizes large trade surpluses and high rates of savings and exports of raw materials in emerging countries.
Tags: 1929 crisis; present financial crisis; comparison study;
[...] They estimate the risk and spread. Buyers from a wider audience and less experienced and specialized: many U.S. households will be encouraged to commit mortgage on their house ("subprime mortgages") at a variable interest rate and very high. The bubble does not stop to grow and broke out in 2007: the collapse of subprime assets. Many U.S. and international investors are left with worthless securities purchased in the United States (“doubtful”) are a vector extension of the crisis. B-The difference in responsiveness of governments and central banks After proving that the causes of the 1929 crisis are different from those of the current crisis, let us now demonstrate the difference in reactivity of governments. [...]
[...] The first "New Deal" lasted for 100 days between 1933 and 1934. The fiscal and monetary measures were the first to be taken because of the urgency of the situation. After injecting liquidity, Franklin D. Roosevelt decided to devalue the dollar by 42% thereby increasing the competitiveness of U.S. exports. Deposit banks and business were separated to allow better control plus control market transactions to limit speculation. On the other hand, to preserve the assets of account holders who will fuel banks, deposit insurance system was set up. [...]
[...] The parliamentary political system which is unable to stem the crisis has been discredited. The regime is considered powerlessness to overcome the crisis so it leads to the crisis of parliamentarism, as evidenced by the events of 6 February 1934 promoted by right-wing extremists who want to appear in the political field. The left will then be reversed and a radical right party arrives at the head of the state. At the meeting of 4 October 2008, when the countries of the European Union such as France wanted to implement a common budget, others did not agree, such as the UK and Germany, who have decided to go alone. [...]
[...] The disconnect between the evolution of productivity gains and wage growth, is, however, a striking phenomenon in the real economy which is common to both crises. Stagnation of wage income in 1929 led to a crisis of overproduction which precedes the bursting of the financial bubble. In 2006, given the stagnation of median income, the development of private debt fueled by the mortgage has been the main engine of U.S. growth after the bursting of the Internet bubble in 2000. [...]
[...] In addition, the problem of "subprime" arose from the fact that the banks, lenders, and agents could no longer distinguish banks from the August 2007 which were solvent, from those which were insolvent, so they stopped lending money all banks. It is in this sense that it was decided not to save Leman Brothers considered insolvent, unlike AIG considered solvent Economic crises The stock market crash of 1929 led to the failure of debtors to repay their loans, and creditors went bankrupt. The durable goods did not sell because they were made possible by consumer credit. Agricultural overproduction generated a fall in prices. At the same time, the Federal Reserve refused to inject liquidity. [...]
Online readingwith our online reader
Content validatedby our reading committee