Recessions, Depressions, and Panics
By: Frankie Sperka
Throughout the years of our country's history there have been many different economical highs and lows that have affected the country. Some of the worst of the economic problems include The Panic of 1837, The Great Depression, The Great Recession, and many more. These economic problems affected our country in very big ways, both good and bad.
The Panic of 1837:
Near the end of Andrew Jackson's career, he thought that the Second Bank of the United States' leader, Nicholas Biddle, was too controlling of the members of congress. Because of this sought out to destroy the bank and regain control. He stopped federal funds to the bank, and it died out. The state banks then had the control, but handed out loans to frequently. The more money that was handed out, the less valuable it was. When this inflation occurred, the prices started to rise, as money became of less value. Many people that didn't have the money to start couldn't keep up with the rising prices, so panic occurred.
The Great Depression:
The Great Depression was the worst economic depression in history. Some of the things that lead up to the great depression (in the 1920's) were that the people of America had discovered the stock market, and started to buy stocks to earn more money. When people had these stocks and wanted to take out a loan, they would ask for it and use the value of their stocks as collateral (a default value/ possession that banks fall back to if you can't pay off a loan). When the stock market crashed on October 28-29, 1929, that collateral value went down. As soon as the value of stocks plummeted, people started to sell their stocks, in hopes to scavenge up some money. Many people poured a lot of their money into their stocks that all crashed in 1929, this happened all over the country leaving the economy shattered. Many businesses that invested money into stocks got worried because they lost a lot of money, and fired many employees. At the peak of the depression, the unemployment rate was at 25%, meaning that one in four people eligible for work in the country were unemployed, whereas today we are currently at an unemployment rate of about 6%. It would take about 10 years for the economy to sufficiently recover from this devastating blow to the financial departments of the United States of America.
The Great Recession:
The Great Recession was due to appraisers (people that decide the value of a house) and mortgage lenders (people that evaluate the price range of a house that you could buy), fooling customers into thinking that they could buy a house that they really couldn't afford. This occurred when a couple came to these people for help to buy a house. The mortgage lender would value the couple and then state a value of a house that they could afford together. When they did this evaluation, they took all of their money into account, including money for necessities. The couple would then go to a bank, ask for a loan, and then go look for a house within the range of value that the real-estate agent gave them. Later many people found out that they really couldn't afford the house they had just bought. At the same time, the appraisers were valuing these same houses at a way higher value than they were already worth. So when people started to realize that these houses were not worth what they were valued, they stopped buying. Then all of the people that had bought a house for a lot more money than it was worth, couldn't pay off their loan, and had just lost a lot of money. Many bank, real-estate, and home building workers/ employees were let go because of the loss of money, and we are still recovering, slowly but surely.
Comparing the Three
The Panic of 1837
The Great Depression
The Great Recession
The Panic of 1837
- Ultimately created by the abrupt destruction of the second national bank
- Inflation occurred and money was less valuable
- Loans and illiquid (money value that can't be converted to spendable money easily) money lead to economic collapse
The Great Depression
- The reliance on the stock market and its unstable (illiquid) values lead to economic collapse
- Banks failed to follow the proper procedures in order to give a loan
One common theme between all three of these economic crisis, is the fact that during these time periods, the country became too reliant on more illiquid forms of money, such as loans, stocks, and real-estate. When this happened on such a wide scale, banks that loaned money couldn't collect their loans and crisis occurred.
While doing this project I really had fun and found that the economy is truly fascinating! I loved learning about the depressions and recessions that our country has gone through, and learning about how we fixed it, and learned from it. After doing this project I have come to think that the economy is somewhat fragile. I think it's similar to the game of Jenga, if you pull an important piece, the whole structure implodes. So if one big business has a problem the whole economy suffers. I want to keep learning about economic problems and why they occurred. I hope I can do another project like this in the future.
- "The Great Depression, The Great Recession, and the Stock Market." Personal interview. 17 Jan. 2015.