Question

similarities and differences between the crash of 1929 and financial crisis of 2008

Answer 1

Similarities:-

(a) Both the financial crisis of 1929 and 2008 were the result of seeds planted by the Federal government. While in 1929, Federal government overvalued the market by lending loans at unimaginably low interest rates resulting in the rapid expansion of stock market causing the market to boom which led the federal government to increase the interest rates which stifled investment affecting trade and export business. Market stability was hugely affected with the fall in investment reducing the economic growth sharply and ultimately led to the financial crash.

The 2008 financial crisis occurred when banks provided housing loans for the uncreditworthy people who even did not have the capacity to buy houses based on dubious securities provided by the debtors which led the housing market to take a downturn and collapsed many banks' economy.

(b) Instead of taking control of the financial crises by balancing the federal budget, government resorted to spend massive federal spending for the economic expansion and public works which further aggravated the economic situations.

(c) Public consumption and spending started falling during both the 1929 and 2008 recession and unemployment rate was going higher as most people lost their jobs after these economic crises.

(d) Tax rates were raised after both the financial crises by the government in order to increase spendings by people.

Differences:-

(a) In 1929 economic depression, stock market crash due to huge fall in the share prices in the New York Stock exchange led to the bankruptcies and market contractions which affected all the global economy specially western countries for the next 12 years causing great depression.

On the other hand, the 2008 financial crisis started with the contraction in the real estate business where the prices of houses started falling rapidly which started affecting on rest of the economy.

(b) The great depression of 1929 was mainly limited within the national boundary of USA while the great recession of 2008 affected the whole world economy.