How Close Is the Great Depression, Part 2?
Credit crunch, unemployment rates and financial disaster have led many Americans to believe that the United States is approaching a remake of the Great Depression of 1929, a terrible economic slump that lasted about 10 years. How close are we from a depression?
Six months before the Great Depression had been officially recognized by economists and the U.S. Government, the economy had gone into depression. It began with a catastrophic collapse of stock-market prices in October 1929. By 1933, 11,000 of the United States' 25,000 banks had failed. By 1932, U.S. manufacturing industry had fallen to 54 percent of its 1929 level. Even worse, 12 to 15 million workers, or 25-30 percent of the American work force, had lost their jobs.
Social Security, Medicaid, Medicare and unemployment insurance didn't exist at that time. The Federal Deposit Insurance Corporation, FDIC, was not there covering bank accounts.
President Franklin D. Roosevelt, who was elected in late 1932, implemented his New Deal policy to help the U.S. economy recover from depression with a number of social actions, including infrastructure works to create new jobs. The Hoover Dam was built and Southern agricultural regions benefited from education, flood control, fertilizer, and electric power. Most experts agree that Roosevelt's policies helped the needy, but there is no evidence that such policies led to economic recovery. Income per capita in 1939 was not higher than in 1929. World trade in 1939 was still below its 1929 level.
We should make a note of the fact that Roosevelt was elected as the depression was entering into its fourth year. No significant steps had been taken to fight depression before his election.
In January 2009, the U.S. Department of Labor reported a 7.2 percent unemployment rate for December 2008. Unemployment may reach 8 percent or a higher level by the end of January. Since October 2008, the U.S. Treasury has given 317 regional, small and large banks, and community financial institutions $194.2 billion. On Tuesday, January 27, 2009, the Treasury announced that it was investing $386 million in 23 banks as part of its Capital Purchase Program, under the Troubled Asset Relief Program (TARP). The goal is to help banks lend money to businesses and consumers. TARP didn't exist during the Great Depression.
Sooner than later, President Barack Obama will get his stimulus package approved in both the U.S. House of Representatives and the Senate. The House has already passed its own bill. We are talking about nearly $900 billion in total. This package contains social actions similar to the Roosevelt's ones, but also contains measures to assist the private sector. Obama also counts on the second half of the Bush administration stimulus plan for about $350 billion. All the new administration has to do is to monitor how the American taxpayers' money will be used. It's a funding to help the nation get an economic recovery, to lower unemployment rate, to fight credit crunch, not an award for CEOs who failed to do things correctly.
Obviously, figures show that we are far away from the days of the Great
Depression. However, the way Corporate America, the U.S. Government and the
American consumer handle this current, confusing recession will determine
whether the country and the rest of the world will avoid a real depression
in the near future.
(Hernández Cuéllar is Publisher and Editor in Chief of Contacto Magazine, a bilingual publication he founded on July 1, 1994 in Burbank, California. He has also worked as a news writer for Spain's international news agency EFE in Cuba, Central America and the United States, and Metro Editor of La Opinion of Los Angeles, as well as an instructor of journalism at the University of California Los Angeles, UCLA.)
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