Causes Of The Great Recession

The Great Depression and the Great Recession of 2008 both had tremendous effects on the United States. During these events, American citizens were affected by wage cuts, unemployment, and desertion. The government response varied from self reliance, volunteerism, localism, trickle down economics, and they moved to a more hands on approach to stabilize the economy. In order to prevent these major events, the government and the people must build up the economy in better ways. The Great Depression was caused by many key factors; stock market crash, bank failures, buying on credit, and stock market speculation. The stock market crash made prices drop and had more than 6 million shares sold in one day which brought about Black Tuesday and the stock

Since the start of the Great Recession, net investment as a share of GDP, had plummeted to its lowest level. This sharp drop in investment comes despite sharply rising profits. High interest rates limited liquidity and the biggest culprit was the Federal Reserve, which often raised interest rates to protect the value of the dollar. According to thebalance.com, “The fed raised rates to battle stagflation.” Stagflation being a persistent high inflation combined with unemployment and stagnant demand in a country’s economy. The elimination of government power in the industry, which was enacted to create more competition within the industry, removed restrictions on loan-to-value ratios for the banks during deregulation. Asset bubbles made the prices of internet companies, stocks, and houses inflate beyond their sustainable value. As stated on thebalance.com, “Irrational exuberance in the housing market led many people to buy houses they couldn’t afford and investors took advantage of low rates to buy homes just to resell them.” Citizens were tricked into buying houses they could not pay off, believing housing prices could only go

The Great Depression placed economic, social, and psychological strains on the people, family disorganization and deprivation, desertion rates increased, and custodial institutions increased by 50 percent. According to encyclopedia.com, “In 1933, the average family income had dropped to $1,500, 40 percent less than the 1929 average family income $2,300.” Millions of families lost their savings as numerous banks collapsed. Although marriage rates declined, divorce rates also declined, which was largely the consequence of the inability to pay lawyer fees at the time. Desertion rates increased, the Dust Bowl being one of the main reasons, but also because two or more families had to crowd together in one home or apartment in single-family residences. The Dust Bowl made people move westward and desert their homes, these people being referred to as