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Economy | 15
more workers losing their jobs. Again, does this
sound horribly familiar?
To compound problems, the banking system
then collapsed. In the period from 1930 to 1932
there were repeated bank runs and thousands of
banks failed and as a result, those banks which
did survive were unwilling to lend. So concerned
was Roosevelt about the plight of the banks,
when he was voted into power in early 1933, that
he ordered the banks to close for 2 weeks while
Federal inspectors examined their books.
Roosevelt then instigated what was to become
known as the 'new deal' which aimed to stop the
bank runs and use government spending to stim-
ulate economic activity. Yes, more parallels with
events today.
Roosevelt was, however, eager to continue bal-
ancing the nation's books and in order to do so
he raised taxes which, in 1938, had the effect of
halting the green shoots of economic recovery
and sending the economy back into recession.
The dark days of the great depression eventually
came to an end in 1939 when the government
started to ramp up defence spending. As a result,
US production rose by 80 per cent in just three
years and what was a government surplus
became a government deficit which, for the large
part, is where is has remained ever since.
Parallels
The parallels between The Great Depression of
the 1930s and events of today are obvious, but
that does not necessarily mean we are in for sim-
ilar tough times in the years ahead. Today, most
governments have recognised the need to stimu-
late the economy and have acted fairly quickly to
prevent a catastrophic collapse of the banking
sector. There will be many readers who will feel
that the government today has not acted quickly
enough, but they have undoubtedly been more
decisive than their forefathers.
It was interesting, listening to debates taking
place at the recent economic summit in Davos, to
hear ministers arguing about the potential dan-
gers of introducing protectionist economic poli-
cies and the need for all countries, no matter
how hard their economies are being hit, to keep
their trading links open. Although it may seem
prudent to some to keep government spending
under tight control and to put measures in place
which favour domestic manufacturers, if there is
a lesson to be learnt from history, it's that such
policies don't work.
Lessons to be learnt
It is also unreasonable to assume that the col-
lapse in consumer spending in the 1930s will be However, there are lessons to be learnt. The the wrong decisions are made - as they were by
matched by a similar decline today. Yes, we are Great Depression demonstrated the way in which Roosevelt when he raised taxes in order to bal-
seeing a sharp downturn in spending but it has a run in the financial markets and collapse in ance the nations books - then the economy can
to be remembered that back in the 1930, when confidence in the banks could have a dramatic take a sudden nose-dive.
someone was thrown out of work they received impact on the real economy. We have seen that Let's hope that the leaders of the world's
no support from the state and became destitute. happening all too graphically in recent months. largest economies have learnt the lessons from
Today, as tough as life is for the unemployed, The Great Depression also showed that if the history and that the road to recovery will be
they do get state help and do continue to spend, right economic policies are introduced by gov- shorter and less painful than it was back in the
albeit to a lesser extent. ernments that the situation can be eased, but if 1930s.
www.mortgageintroducer.com March 2009 Commercial Finance Introducer
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