# data[].attributes.attachment_link.title
Great Depression and World War II, 1929-1945 | U.S. History Primary Source Timeline | Classroom Materials at the Library of Congress | Library of Congress

# data[].attributes.attachment_link.description
Explore important topics and moments in U.S. history through historical primary sources from the Library of Congress.

# data[].attributes.attachment_link.readable_text
The period known as the Great Moderation came to an end when the decade-long expansion in US housing market activity peaked in 2006 and residential construction began declining. In 2007, losses on mortgage-related financial assets began to cause strains in global financial markets, and in December 2007 the US economy entered a recession. That year several large financial firms experienced financial distress, and many financial markets experienced significant turbulence. In response, the Federal Reserve provided liquidity and support through a range of programs motivated by a desire to improve the functioning of financial markets and institutions, and thereby limit the harm to the US economy.Nonetheless, in the fall of 2008, the economic contraction worsened, ultimately becoming deep enough and protracted enough to acquire the label "the Great Recession." While the US economy bottomed out in the middle of 2009, the recovery in the years immediately following was by some measures unusually slow. The Federal Reserve has provided unprecedented monetary accommodation in response to the severity of the contraction and the gradual pace of the ensuing recovery. In addition, the financial crisis led to a range of major reforms in banking and financial regulation, congressional legislation that significantly affected the Federal Reserve.

Rise and Fall of the Housing Market

The recession and crisis followed an extended period of expansion in US housing construction, home prices, and housing credit. This expansion began in the 1990s and continued unabated through the 2001 recession, accelerating in the mid-2000s. Average home prices in the United States more than doubled between 1998 and 2006, the sharpest increase recorded in US history, and even larger gains were recorded in some regions. Home ownership in this period rose from 64 percent in 1994 to 69 percent in 2005, and residential investment grew from about 4.5 percent of US gross domestic product to about 6.5 percent over the same period. Roughly 40 percent of net private sector job creation between 2001 and 2005 was accounted for by employment in housing-related sectors.

The expansion in the housing sector was accompanied by an expansion in home mortgage borrowing by US households. Mortgage debt of US households rose from 61 percent of GDP in 1998 to 97 percent in 2006. A number of factors appear to have contributed to the growth in home mortgage debt. In the period after the 2001 recession, the Federal Open Market Committee (FOMC) maintained a low federal funds rate, and some observers have suggested that by keeping interest rates low for a "prolonged period" and by only increasing them at a "measured pace" after 2004, the Federal Reserve contributed to the expansion in housing market activity (Taylor 2007). However, other analysts have suggested that such factors can only account for a small portion of the increase in housing activity (Bernanke 2010). Moreover, the historically low level of interest rates may have been due, in part, to large accumulations of savings in some emerging market economies, which acted to depress interest rates globally (Bernanke 2005). Others point to the growth of the market for mortgage-backed securities as contributing to the increase in borrowing. Historically, it was difficult for borrowers to obtain mortgages if they were perceived as a poor credit risk, perhaps because of a below-average credit history or the inability to provide a large down payment. But during the early and mid-2000s, high-risk, or "subprime," mortgages were offered by lenders who repackaged these loans into securities. The result was a large expansion in access to housing credit, helping to fuel the subsequent increase in demand that bid up home prices nationwide.

Effects on the Financial Sector

After home prices peaked in the beginning of 2007, according to the Federal Housing Finance Agency House Price Index, the extent to which prices might eventually fall became a significant question for the pricing of mortgage-related securities because large declines in home prices were viewed as likely to lead to an increase in mortgage defaults and higher losses to holders of such securities. Large, nationwide declines in home prices had been relatively rare in the US historical data, but the run-up in home prices also had been unprecedented in its scale and scope. Ultimately, home prices fell by over a fifth on average across the nation from the first quarter of 2007 to the second quarter of 2011. This decline in home prices helped to spark the financial crisis of 2007-08, as financial market participants faced considerable uncertainty about the incidence of losses on mortgage-related assets. In August 2007, pressures emerged in certain financial markets, particularly the market for asset-backed commercial paper, as money market investors became wary of exposures to subprime mortgages (Covitz, Liang, and Suarez 2009). In the spring of 2008, the investment bank Bear Stearns was acquired by JPMorgan Chase with the assistance of the Federal Reserve. In September, Lehman Brothers filed for bankruptcy, and the next day the Federal Reserve provided support to AIG, a large insurance and financial services company. Citigroup and Bank of America sought support from the Federal Reserve, the Treasury, and the Federal Deposit Insurance Corporation.

The Fed's support to specific financial institutions was not the only expansion of central bank credit in response to the crisis. The Fed also introduced a number of new lending programs that provided liquidity to support a range of financial institutions and markets. These included a credit facility for "primary dealers," the broker-dealers that serve as counterparties for the Fed's open market operations, as well as lending programs designed to provide liquidity to money market mutual funds and the commercial paper market. Also introduced, in cooperation with the US Department of the Treasury, was the Term Asset-Backed Securities Loan Facility (TALF), which was designed to ease credit conditions for households and businesses by extending credit to US holders of high-quality asset-backed securities.

About 350 members of the Association of Community Organizations for Reform Now gather for a rally in front of the U.S. Capitol March 11, 2008, to raise awareness of home foreclosure crisis and encourage Congress to help LMI families stay in their homes. (Photo by Chip Somodevilla/Getty Images)

Initially, the expansion of Federal Reserve credit was financed by reducing the Federal Reserve's holdings of Treasury securities, in order to avoid an increase in bank reserves that would drive the federal funds rate below its target as banks sought to lend out their excess reserves. But in October 2008, the Federal Reserve gained the authority to pay banks interest on their excess reserves. This gave banks an incentive to hold onto their reserves rather than lending them out, thus mitigating the need for the Federal Reserve to offset its expanded lending with reductions in other assets.

Effects on the Broader Economy

The housing sector led not only the financial crisis, but also the downturn in broader economic activity. Residential investment peaked in 2006, as did employment in residential construction. The overall economy peaked in December 2007, the month the National Bureau of Economic Research recognizes as the beginning of the recession. The decline in overall economic activity was modest at first, but it steepened sharply in the fall of 2008 as stresses in financial markets reached their climax. From peak to trough, US gross domestic product fell by 4.3 percent, making this the deepest recession since World War II. It was also the longest, lasting eighteen months. The unemployment rate more than doubled, from less than 5 percent to 10 percent.

In response to weakening economic conditions, the FOMC lowered its target for the federal funds rate from 4.5 percent at the end of 2007 to 2 percent at the beginning of September 2008. As the financial crisis and the economic contraction intensified in the fall of 2008, the FOMC accelerated its interest rate cuts, taking the rate to its effective floor - a target range of 0 to 25 basis points - by the end of the year. In November 2008, the Federal Reserve also initiated the first in a series of large-scale asset purchase (LSAP) programs, buying mortgage-backed securities and longer-term Treasury securities. These purchases were intended to put downward pressure on long-term interest rates and improve financial conditions more broadly, thereby supporting economic activity (Bernanke 2012).

The recession ended in June 2009, but economic weakness persisted. Economic growth was only moderate - averaging about 2 percent in the first four years of the recovery - and the unemployment rate, particularly the rate of long-term unemployment, remained at historically elevated levels. In the face of this prolonged weakness, the Federal Reserve maintained an exceptionally low level for the federal funds rate target and sought new ways to provide additional monetary accommodation. These included additional LSAP programs, known more popularly as quantitative easing, or QE. The FOMC also began communicating its intentions for future policy settings more explicitly in its public statements, particularly the circumstances under which exceptionally low interest rates were likely to be appropriate. For example, in December 2012, the committee stated that it anticipates that exceptionally low interest rates would likely remain appropriate at least as long as the unemployment rate was above a threshold value of 6.5 percent and inflation was expected to be no more than a half percentage point above the committee's 2 percent longer-run goal. This strategy, known as "forward guidance," was intended to convince the public that rates would stay low at least until certain economic conditions were met, thereby putting downward pressure on longer-term interest rates.

Effects on Financial Regulation

When the financial market turmoil had subsided, attention naturally turned to reforms to the financial sector and its supervision and regulation, motivated by a desire to avoid similar events in the future. A number of measures have been proposed or put in place to reduce the risk of financial distress. For traditional banks, there are significant increases in the amount of required capital overall, with larger increases for so-called "systemically important" institutions (Bank for International Settlements 2011a; 2011b). Liquidity standards will for the first time formally limit the amount of banks' maturity transformation (Bank for International Settlements 2013). Regular stress testing will help both banks and regulators understand risks and will force banks to use earnings to build capital instead of paying dividends as conditions deteriorate (Board of Governors 2011).

The Dodd-Frank Act of 2010 also created new provisions for the treatment of large financial institutions. For example, the Financial Stability Oversight Council has the authority to designate nontraditional credit intermediaries "Systemically Important Financial Institutions" (SIFIs), which subjects them to the oversight of the Federal Reserve. The act also created the Orderly Liquidation Authority (OLA), which allows the Federal Deposit Insurance Corporation to wind down certain institutions when the firm's failure is expected to pose a great risk to the financial system. Another provision of the act requires large financial institutions to create "living wills," which are detailed plans laying out how the institution could be resolved under US bankruptcy code without jeopardizing the rest of the financial system or requiring government support.

Like the Great Depression of the 1930s and the Great Inflation of the 1970s, the financial crisis of 2008 and the ensuing recession are vital areas of study for economists and policymakers. While it may be many years before the causes and consequences of these events are fully understood, the effort to untangle them is an important opportunity for the Federal Reserve and other agencies to learn lessons that can inform future policy.

# data[].attributes.attachment_link.description
The 2007-09 economic crisis was deep and protracted enough to become known as "the Great Recession" and was followed by what was, by some measures, a long but unusually slow recovery.

# data[].attributes.body
Both the Great Depression and the 2008 Financial crisis took place during a stock market crash

# data[].attributes.body
Both the Great Depression and the 2008 Crisis followed with disastrous outcomes with for example unemployment numbers dropping

# data[].attributes.body
Both periods were characterized by high volatility

# data[].attributes.body
The Great Depression lasted for several years while the Recession of 2008 only lasted for several months

# data[].attributes.body
The overall scale of impact of the great depression on the economy is far more severe than recession.

# data[].attributes.body
Both had huge economy slumps during these events

# data[].attributes.attachment_link.title
What Do The Great Depression And The Great Recession Have In Common?

# data[].attributes.attachment_link.description
Indeed, huge economic slumps accompanied the Great Depression and the Great Recession. Also, the diagnoses and prescriptions were the same. The government was quick to blame flaws in the capitalist system and the alleged excesses they created. But, did they misdiagnose the cause?

# data[].attributes.body
A common factor between both the Great Depression and the Recession of 2008 was a decline in aggregate demand

# data[].attributes.body
During these two events the great depression had a higher rate of unemployment at 25% while the great recession had a rate of 8.5%

# data[].attributes.body
The Great Recession occurred during 2008 and resulted from the US housing bubble caused by the subprime mortgage crisis. However, the Great Depression took place in the US during 1929 and 1930 and began with a big fall in stock indices

# data[].attributes.body
The Fed's response to each event was a factor that resulted in two significantly different outcomes. In 1929 the Fed's decision slowed down economic activities in the US while in 2008, the Fed provided a monetary stimulus to revive the economy

# data[].attributes.body
The consensus among economists is that the response to the 2008 crisis was far better than the Great Depression

# data[].attributes.body
The Great Depression was triggered by the stock market crash of 1929 while the 2008 Recession was caused by the housing market bubble and the subsequent collapse of the subprime mortgage market

# data[].attributes.body
During two events their effects on the population were different because the great recession effect people in ways of production, employment, and lower household income and spending and the great depression its effects were more widespread in unemployment and a major pause in economic activity

# data[].attributes.body
Major banks fueled the 2008 crisis whereas following the 1929 crisis, large swaths of bank failures lead to a collapse in liquidity and a collapse of public confidence in the banking system

# data[].attributes.body
For business during these events they would've been affected differently because during the great depression may lead business to downsize and this may take years to recover from. The great recession may lead business going into a downward trend and may take months to recover rather than years.

# data[].attributes.attachment_link.readable_text
The Great Depression was a worldwide event that resulted in a huge economic downturn for multiple countries. It began in 1929 and lasted almost a decade till 1939. It was, by far, the longest as well as the most severe depression that the industrialised and developed countries of the western world (including America and Europe) had to go through. It led to severe consequences for those nations including fundamental changes in the economic institutions, the overall macroeconomic policy, as well as the economic theories that drove industrial and business activities. The point of origin of the great depression was in the United States of America. But it ended up causing a drastic decline in the economic output in many countries across the globe that resulted in a severe unemployment crisis, along with acute deflation. The social and cultural effects of the great depression were also very wide and long-lasting. There was a significant decline in the industrial production in the United States along with a downward slide in its Gross Domestic Product (GDP). There were several causes for the great depression including:

Decline in spending by consumers

Stock market crash

Monetary contraction

Problems within the banking industry

Ultimately the great depression has ended up causing a much wider impact in the economy of several developed countries compared to the 2008 recession. In general, the great depression is much more severe in its outcome for a country's economy compared to recession.

Recession

A recession is defined as the contraction of a business cycle which takes place in the event of a general decline in the economic activity, within one or more countries. The main causal event in the case of a recession is a widespread drop in the spending by the consumers, which can also lead to an adverse demand shock in the market. It can be triggered by a number of events which include the following:

Financial crises

External trade shock

Adverse supply shock

Bursting of the economic bubble

Natural or man-made disaster

A recession often results in a significant decline of the economic activity that spreads across a market, and lasts for more than a few weeks or months. Since we are living in a globalised world, this recession can spill over to other countries as well. It is generally characterised by a significant drop in the real GDP, income, employment figures and industrial production numbers. In a number of countries, a recession is defined as a negative economic growth (in terms of its GDP) for two consecutive economic quarters. A number of governments respond to the recession by taking measures like bringing in expansionary policies on a macroeconomic level. They try to undertake activities like increasing the money supply, improving government spending or decreasing the taxation rates to bring their economy out of recession.

Difference between Great Depression and Recession

There are several points of difference between the Great Depression and Recession. Both of them involve a slowdown in economic activities along with job losses, decrease in GDP and industrial production, but the magnitude of these losses are also very different. We will explore some of them in the table below:

A Great Depression is characterised by severe curtailing of economic activity due to causes like the slowdown in industrial production, bursting of a bubble, adverse trade events, etc.

A Recession is also characterised by a slowdown in economic activities due to loss of jobs, external trade problems, natural or man-made disasters, etc. but the scale and severity are lower compared to the great depression.

The overall scale of impact of the great depression on the economy is far more severe than recession.

The overall scale of impact of the recession on the economy is far less severe than the great depression.

A great depression, like the one which took place in the 1930s, can last for several years.

A recession, like the one which took place during 2008, can last for several months.

Impact on the business cycle

A great depression can lead to a major downsizing of the business cycle, which can take years to recover from.

A recession can lead to a downward trend in the business cycle, which can take months to recover from.

The reach of a great depression is wider than a recession. It can impact almost the entire globe.

The reach of an event like the recession is relatively narrower than the great depression. It is generally limited to a small group of nations.

Conclusion

It is clear that in spite of several differences between the great depression and the recession, both these events can lead to a huge economic downturn, along with adversely impacting a number of individuals and institutions. So it is important to study these two economic phenomena to understand their effect on businesses and governments around the world. Governments should also focus on identifying possible events or activities, which may result in an economic downturn and prepare their countries to brace for its impact.

Frequently Asked Questions

When did the Great Depression start in the United States and how long did it last?

The Great Depression started in the United States in 1929, and it lasted for almost 10 years till 1939.

What were some of the main causes of the great depression of 1929?

Some of the major causes of the great depression in the year 1929 are as follows:

The crash in the stock market

Monetary contractions

Decrease in international lending

Increase in the interest rates

Also See:

# data[].attributes.attachment_link.title
Difference between Great Depression and Recession

# data[].attributes.attachment_link.description
The major points of difference between the Great Depression and Recession will give the readers an idea of the importance of the two concepts.

# data[].attributes.body
In response to the Great Depression, Congress approved President Franklin Roosevelt's New Deal, which provided $41.7 billion in funding for domestic programs like work relief for unemployed workers. As federal money was pouring into the recovery and relief efforts of the 1930s, GAO's workload increased

# data[].attributes.body
Congress passed the American Recovery and Reinvestment Act of 2009, which included $800 billion to promote economic recovery.

# data[].attributes.body
A survivor of the Dust bowl

# data[].attributes.attachment_link.provider_name
National Cowboy & Western Heritage Museum

# data[].attributes.attachment_link.readable_text
Removing drifts of soil which block the highways near Guymon, Oklahoma, 1936. Photography by Arthur Rothstein, Library of Congress, Prints & Photographs.

In The Worst Hard Time, the 2006 National Book Award winner for Nonfiction, Timothy Egan undertakes to tell the "untold story of those who survived the great American Dust Bowl." Indeed, for a wide swath of the public the story of those who stayed to endure life on the dust-swept High Plains during the "Dirty Thirties" is little known. Instead, the popular image most associated with the Dust Bowl is from John Steinbeck's 1939 National Book Award-winning novel The Grapes of Wrath: Okies fleeing drought-stricken farms in hopes of new lives in the verdant valleys of California.

Yet for those who stayed on in the areas most affected by the Dust Bowl - totaling 100 million acres in western parts of Kansas, Nebraska, Oklahoma, and Texas, including the panhandle regions, along with northeast New Mexico and southeast Colorado - as well as their offspring, survival during these lean years wasn't a tale heretofore untold. For the survivors it was a harrowing reality; for their children and grandchildren, a specter that haunted the lives of their parents and grandparents.

In The Worst Hard Time, Egan tells of the Dust Bowl with an expert and expansive eye, delving into the attitudes and practices that both caused the land to revolt (including fraud, mechanization, and over-farming during the wet years) and ensured the eventual cessation of catastrophic dust storms and the return of a viable agricultural economy (including terraced farming, conservation districts, and replanting of grasses). Egan also relates the individual experiences of those whose connection to the land wouldn't allow them to flee, despite mounting evidence that the land had turned against them.

Rather than being untold stories, however, for many these are stories well known. Stories of individuals such as my grandfather, James Nidey, who today at age 96 still lives on the same section of land where, as a young man, he endured the 1930s in the epicenter of the Dust Bowl: Baca County, in far southeast Colorado. "You couldn't see your hand in front of your face," he told me recently when describing one of the monstrous dust storms that famously blighted the daytime skies of the High Plains, speaking a refrain that is common to those attempting to describe something so indescribable.

It is also the story of my great uncle, Ike Osteen, who himself came of age in Baca County during the 1930s and who figures prominently in The Worst Hard Time. Readers first meet Osteen along with Egan when the author arrives in Springfield, Colorado, in 2003 to conduct an interview. At age 86, Osteen is found on top of his house fixing the roof. Throughout the book, Egan flashes back to Osteen's childhood as one of nine kids living in a dugout with their widowed mother.

Like my Grandpa Nidey, Osteen would survive the Dust Bowl still calling Baca County home. Both would go on to marry daughters of Ira Dunlap, a local rancher, and his wife, Cora. And both would remain constant tinkerers, always with a new project, always good with their hands, busy fixing the old instead of buying the new. A common trait, one finds, among those who survived the Dust Bowl.

A car is chased by a "black blizzard" in the Texas Panhandle, March 1936.
Photography by Arthur Rothstein, Library of Congress, Prints & Photographs Division.

Several years ago, my grandfather placed a metal roof on his home - the same home his grandfather purchased soon after it was constructed in 1918. Before the metal roof was installed, however, old layers of shingles had to be removed, down to those that had been on the house during the Dust Bowl. Underneath remained a thick layer of dust that had collected during the frequent "dusters" of the 1930s. My grandfather saved a portion of this dust - that, surprisingly, isn't gritty like dirt or sand, but is light and powdery, akin to talcum powder - which he donated to the local history museum just south of Baca County in the Oklahoma Panhandle community of Boise City. Today, this "Dust Bowl dust" remains on display for visitors to feel and ponder.

Perhaps this was my grandfather's way of ensuring that the story he shares with a dwindling number of survivors never goes untold again.

The Worst Hard Time was a featured selection of the summer 2017 session of the National Cowboy Museum's Read the West Book Club. To register for the winter 2018 session, which begins January 21, 2018, or for more information, visit nationalcowboymuseum.org/book-club.

# data[].attributes.attachment_link.title
Surviving the Dust Bowl - National Cowboy & Western Heritage Museum

# data[].attributes.attachment_link.description
Rather than being untold stories, however, for many these are stories well known.