The period 1929-33 was when universal banks were ruptured into separate commercial and investment banks, which led to ascension of big giants like Goldman Sachs, Morgan Stanley and more. However the current global turmoil has taken a reverse gear where many of these investment banks are again turned into large commercial banks.
There is a need to take a look at the differences and similarities between the great depression of 1929 and the current global fiasco. Let’s go back and brush ourselves on what exactly was the great depression.
The great depression which originated in 1929 in US and spread world over by 1930’s was characterized by barren business and huge unemployment. The main cause of this depression which took all the nations in its web was crashing of the stock markets in 1929. Thousands of investors lost their money in stock markets, leading to a longest recession which comprised huge layoffs, unemployment , wiping out of business activities , which left millions of people to depend on government or charity for food.
By 1930’s this depression became a worldwide phenomenon, taking all countries in its grip. This lead to vast downfall in global trade as each country tried to protect its own industries by imposing high tariffs on imported goods.
Causes of great depression:
1. Stock market crash: Failure of stock markets on October 29, 1929, which led to loss of about 40 billion dollars to stakeholders.
2. Bank failures: During the period of 1930’s 9000 banks filed for bankruptcy. Bank deposits were not insured and thus as banks failed people lost their savings. The banks which survived in this turmoil, stopped creating new loans, which in turn led to slowdown in business activities and less expenditure.
3. Cut-back in purchasing power: with the failure of stock markets and fears of further financial fiasco, led to cut – back in purchasing of items from all individual classes. This in turn led to piling up of inventories, which stimulated a cut down in production, leading to layoff of employees. Unemployment reached to a level of 25%, leading to lowering the purchasing power of individuals.
4. Hawley – Smoot Tariff: as businesses were slowing down, to protect its own industries American government created a Hawley-Smoot tariff in 1930, which meant to charge high import tariffs on imports, this led to deterioration in global trade leading to economic retaliation.
Current Scenario: 
Before going into comparisons let’s see what current global turmoil looks like: As it’s said truth is bitter, the fact is we are going through a most severe global turmoil since the days of great depression. The similarity between both the crises is that they both originated from USA and now worldwide nations are facing its spillover effects. This financial global turmoil is a combined result of some intermingled financial mistakes. There are some fundamental causes at roots of this depression.
1. Firstly are the conceited norms in USA. USA has always been relishing sustainable economic development, buffered with low inflation rates in last two decades. This led to complete ignorance of business cycle of economy. The signs of this were reflected 20 months ago, when America was combating excess liquidity in the market. That was the plenteous sign of coming of real estate bubble and asset price inflation.
2. Secondly it is the protection enjoyed by these private and investment banks. Booming economic conditions made these banks take higher risks, among which most of the deals of these banks were highly leveraged transactions. However these risks turn out to be evil for these high flying banks as they didn’t get enough capital in support of their high risk investments.
3. Last but not the least reason would be failure of the top tier management to provide guidance to their deal makers. Greed took over and rest is history.
Though today symptoms of current events are similar to that of great depression, but according many economists making their comparison is misleading.
Apart from this the policies of Federal Reserve differ in both the periods. 1930’s policy was "downturn as a force for good". Liquidate labour, stocks, farmers, so that people will work harder and live more moral lives. However in today’s crisis Federal Reserve is making full efforts to increase liquidity in stocks, to farmers and real estate.
It’s true that current crisis is nowhere in comparison to the great depression, but still we need to put a full stop over these ongoing crises, which is hitting the nations worldwide hard. The other difference which can be drawn over these two crises is that in the present day we have President Barack Obama who promises to solve the crisis. The methods which he plans to initiate are to follow policy of creation of jobs and more spending by American people. Apart from this we have seen bailout packages already becoming the breaking news. Therefore it can be said roots of the current crisis are the same but the nature is totally different. We can hope to see a better future.
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