Global Recession: Causes, Consequences, Fixes, Part 5

 

 

 

 

Please, watch this YouTube video:

 

This YouTube video will provide an insight in Great Depression:

 

This YouTube video is from John McCain’s election campaign:

 

This YouTube video will effectively show you, how false advertising and media reports can easily put tons of people, including highly qualified like doctors, on a very wrong path:

 

This YouTube video will provide you a broader perspective on this issue:

 

Right before, during and after a crisis, including great depression, black Monday, tech crunch and burst of real estate bubble, we see two very conflicting streams going on. On one hand, the wages incomes and benefits are not keeping up with the actual cost of living and on the other hand advertising and media reports are bombarding consumers with all these must haves, for which most people have no money. American dream, a big house, a big car with all the advanced features, all kind of electronics and equipment like, cell phones, expensive and junk, ready made food, celebrity apparel, etc. etc. And then people are getting “easy” credit and loans offer through all kind methods of communication, mail, email, telephone, TV, radio, to name just a few. So, what people do? They start getting all of this stuff on credit and loans, just to, soon, find themselves in hole where they cannot afford their way of life anymore. Pressured with heavy payments on credit and loans and no increase in incomes, people start cutting back things like vacations, going out and spending on leisure and entertainment. When this is not enough, they start cutting on basic necessities like food, clothing, home improvements, education and healthcare. In many cases, it goes to the point where people cannot even pay for their American dream, home. This cuts down the consumer confidence and spending. Decrease in consumer spending causes fall in business revenues. Fall in business revenues means business closures, bankruptcies and re-structuring, mostly done by cutting staff. This, of course causes hike in unemployment. So, starts a spiral, a perpetual process. More unemployment means even less consumer spending, which means less business revenues, which means more unemployment. Plus, all these unemployed and financially struggling people start defaulting on their credit and loan payments. This puts banks in dangerous situation. Banks start closing and going bankrupt, which ensues a panic in consumers, wondering if their money is safe in banks. They start withdrawing their money from banks and investments. Hence, come more bank closures and more businesses drying out of money. More unemployment, even less consumer sending, less business revenues, more layoffs, more business closures and bankruptcies and spiral goes on and on.
Please, visit Ingrimayne.com to read this article, which explains the great depression in a way that it is easy to understand for everyone. It states:
“The decade of the 1930s saw the Great Depression in the United States and many other countries.”

 

“At the worst point of the Great Depression, in 1933, one in four Americans who wanted to work was unable to find a job.”

 

“Many people date the beginning of the Depression at October 24, 1929, Black Thursday, the day the stock market crashed.”
“However, economists date the Depression somewhat differently.”
“The period that is called the Great Depression contained two periods of recession.”
“Prices fell considerably from 1929 to 1933, but not afterwards despite the very large levels of unemployed resources.”

 

“People perceive the 1930s as a period in which business failures were very high, and they were when one compares them to what happened in the 1940s and 1950s.”
“There was one segment of business that was unusually hard hit during the Depression, the banking industry.”
“The high unemployment rates of the 1930s made those who had jobs both thankful that they had jobs and fearful that they could lose them.”
“From the Civil War until the Depression, the Republican party was the dominant political party–it generally controlled the House of Representatives, the U.S. Senate, and the Presidency.”
“Finally, the Depression was more than an American affair.”
“The questions that the Great Depression raises are similar to those that the Great Inflation raised.”

Please, read article on Voxeu.org. It mentions:
“What started the Great Depression?”
“Our current crisis continues to draw parallels to the Great Depression (Eichengreen and O’Rourke 2009) and has refocused attention on the 1930s.”
“In a recent paper, I consider the relationship between these facts and the start of the Depression, as well as the way in which it unfolded (Ohanian 2009).”
“Economists cite monetary contraction (Friedman and Schwartz, 1963) and banking panics (Bernanke, 1983) as important determinants of the Depression, but industry was significantly depressed before either of these factors was quantitatively important.”
“This indicates that a factor other than monetary contraction or bank runs was central in initiating the Depression.”
“Labour market data indicate that this factor impacted the economy by creating a labour market failure that prevented the industrial labour market from clearing. Nominal industrial wages declined little during the early stages of the Depression.”
“Mulligan (2005) and Chari, Kehoe, and McGrattan (2007) use aggregate data and reach a similar conclusion about an industrial labour market distortion by showing that there is a large deviation in the standard first order condition that equates the marginal rate of substitution between aggregate consumption and leisure to the real wage during the 1930s.”
“The basic economics from these analyses boils down to the following question: With substantial depression in the industrial sector, why didn’t the normal forces of supply and demand operate to lower the wage and raise output and hours worked?

I develop a theory to address this question of labour market failure based on President Hoover’s cartelisation and wage policies.”
“Hoover’ views about wages also differ considerably from today’s views. Many economists interpret high real wages as reflecting worker productivity that results from a skilled labour force working with a large stock of capital and efficient technologies.”
“Hoover’s economic views set the stage for meetings he held at the White House with major industry in late 1929 and advised them not to cut wages.”

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Read our articles Global Recession: Causes, Consequences, Fixes, Part 4 and Global Recession: Causes, Consequences, Fixes, Part 6

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