A widespread decline in the economy that lasts for many months is known as a recession. On the other hand, when the downturn is more severe and lasts for several years referred to as a depression. Some several recessions and depressions occurred worldwide till now.
The Recession and Depression have one common thing it impacts the economy in several ways. The term “Great” is used here to show how they are the ones who impacted the world a lot compared to others. Many differences can clear up the confusion between the Great Recession and the Great Depression.
The Great Recession vs The Great Depression
The main difference between the Great Recession and the Great Depression is the period and depth of the events. In 2007-2009, the Great Recession occurred due to the US housing bubble burst. In 1929-1939, there was a major fall in stock prices that phase was known as the Great Depression.
The financial crisis of 2007-09 sparked in the United States as an economic recession and was termed as the Great Recession. Since the Great Depression, it was the deepest and longest economic downturn in several countries. It began in late 2007 and lasted till mid-2009.
From 1929 to 1939, there was a worldwide economic downturn which was termed the Great Depression. In the industrialized western world, this depression was the most severe and the longest. It is originated in the United States and caused severe unemployment, acute deflation, and drastic declines in output in the whole world.
Comparison Table Between The Great Recession and The Great Depression
|Parameters of Comparison||The Great Recession||The Great Depression|
|Change in prices||+0.5%||-25%|
|State response||The federal stimulus plan gave fiscal relief to states||Raises taxes, cut spending|
What is The Great Recession?
The period between 2007 and 2009 was marked as a general decline and observed in global national economies which were termed as the Great Recession. The timing and scale of the recession vary across the world. Normal international relation disruption was one of the serious results of this recession.
In the financial system, a combination of vulnerabilities started developing and caused the Great Recession. The triggering events also boosted up recession which started in the United States due to the bursting housing bubble in 2005-2012. According to IMF, this was the most drastic financial and economic crash since the Great Depression.
The homeowners abandon their mortgages when housing prices fell. In 2007- 2008, there was a decline of investment banks that generally held the value of mortgage-backed securities. It caused many to bail out or collapse. This phase was also known as the subprime mortgage crisis.
The impact of this recession across the world is not felt equal. The world’s most developed economies like South America, Europe, and North America fell into a severe sustained recession. Countries like Indonesia, India, and China suffered less impact because their economy was growing substantially during that period.
What is The Great Depression?
During the 1930s, there was a severe economic depression across the world and termed the Great Depression. It began in the United States being, but the timing varies worldwide of this depression. It is considered the most widespread, deepest, and longest depression of the 20th century.
It was started in the United States when on September 4, 1929, there was a major fall in stock prices. On October 29, 1929, the global news was the stock market crash. This day is also known as Black Tuesday. Worldwide GDP fell 15% between 1929 and 1932. The federal government spent about 1.5% for one year during the Great Depression as an emergency fund to combat this situation.
Devastating effects are suffered by both rich and poor countries due to the Great Depression. Tax revenue, personal income, prices, and profits dropped, whereas more than 50% of international trade also fell. Heavy industry dependents cities across the world were especially hit hard.
Rural areas and farming communities suffer due to the 60% price fall of the crop. Areas that were mainly dependent on primary sector industries like logging and mining suffered the most. The U.S economic decline was the only factor behind that pull down other countries too.
Main Differences Between The Great Recession and The Great Depression
- The origin of the Great Recession was started from the bursting of the housing bubble in 2005-06, whereas a major fall in stock prices during September 1929 in the Great Depression caused a global financial crisis.
- During the Great Recession, the US GDP witnessed 4% and 5% of the global GDP. On the flip side, the US GDP during the Great Depression declined up to 30% and global GDP 27%.
- In the Great Recession, the Dow lost nearly 50% of its value even before recovering, while the value lost by the Dow Jones industrial during the Great Depression was about 90%.
- In the Great Recession, 57 banks fail which represent 0.6% of all banks. But in the Great Depression, 9,000+ banks fail, which represent 50% of all banks nationwide.
- When it comes to emergency spending programs, 2.5% of GDP for two years was spent by the federal government during the Great Recession, whereas the federal government spent 1.5% for one year during the Great Depression.
It can be concluded that both the Great Recession and the Great Depression causes a great impact on the economy. They both are termed as “great” due to their severity. In 2007-2009 due to the bursting of the housing bubble, the Great Recession occurred. On the other hand, the Great Depression occurred in the 1930s due to a major fall in stock prices and caused the financial crisis.
In the Great Recession, the unemployment rate was 8.5%, whereas the unemployment rate increased up to 25% in Great Depression. The federal stimulus plan gave fiscal relief to states in the Great Recession, but in the Great Depression, states responded by raising taxes and cut spending.