Lessons from 1929 crisis and its relevance now

A man’s errors are his doorway of discovery- Present economic meltdown, a learning curve-Robin Trehan

We’ve all heard the saying “those who don’t learn from the past are condemned to repeat it”. Could the Great Depression happen again or did America learn its lesson?

In order to answer this question fully, one must have an understanding of the factors that caused the stock market crash of 1929 and the subsequent economic disaster.

Most economists, including Federal Reserve Chairman Ben Bernanke, agree that the primary catalyst for the Great Depression hinged on poor policy-making by the Federal Reserve. The Reserve made the unfortunate decision to reduce the money supply during a time (the summer of 1929) when the nation’s economy was going through a severe recession. In an ill-advised attempt to preserve the worth of the American dollar during the subsequent financial crisis, the Federal Reserve increased rather than decreased the Federal funds rate. This course of action proved disastrous, causing widespread failure of banks. People lost their confidence in financial institutions and ran on the banks, demanding their deposits be returned to them in cash form. The consequences were disastrous and the Great Depression began.

Many people feel that in view of the current situation, America could once again suffer a massive economic disaster on the scale of the Great Depression. This is not surprising when one takes into account the problems that have been plaguing the nation, including market decline, mounting national debt, bank failures, widespread foreclosures and massive unemployment.

This point of view, while understandable, does reflect a worst case scenario mentality. The government has tried to learn from the mistakes of the past and craft a response that will minimize the damage rather than exacerbate it. For example, rather than increase the Federal funds rate, the Federal Reserve has cut it to extremely low levels. Other recovery measures include bailouts, rebate checks, etc.

These tactics are by no means a quick fix and many question their efficacy. However most experts feel that these efforts will, at the very least, preclude a catastrophe on the scale on of the Great Depression. Recovery may be slow and there may be setbacks, but there’s no reason to assume that the sky is falling to a the degree it did during the Great Depression. A man’s errors are his doorway of discovery.As Winston Churchill “Don't take 'no' for an answer, never submit to failure. Do not be fobbed off with mere personal success or acceptance. You will make all kinds of mistakes, but as long as you are generous and true, and also fierce, you cannot hurt the world or even s”