The Great Depression

In our recent times, much has been made of the similarities between the current situation and that of the Great Depression. It’s also often mentioned that the current economic crisis is the worst crisis since the Great Depression of the late 1920s and 1930s. While it is true that there are similarities, the two are not identical and the current crisis, fortunately, has seen actions taken much earlier to stave off a depression of the level seen in the 1930s.

One of the biggest causes of the Great Depression was the disparity in wealth. A study conducted in the 1920s showed that the top .1% of the population had an income equivalent to the lowest 42% of the population combined. The top .1% also had a huge advantage in savings. This disparity resulted in a very small middle class, which is the source of stability in an economy like that of the United States.

Another huge problem was the excess of credit available. Banks were only too willing to loan out money in huge amounts to anyone who came knocking. As long as a person paid back the money, the bank wasn’t concerned. The system worked well unless someone defaulted. Because the banks did not maintain a specific level of reserve, when money was loaned out and not paid back, a person might not actually be able to withdraw his or her money, leading to panic.

One of the greatest causes of prosperity during the 1920s was the stock market. Individuals speculated on the market and kept it at an artificially high level. Unfortunately, in October of 1929, this bubble burst and the entire system starting to come tumbling down.

Contact a Boston Bankruptcy Lawyer

If you are facing constant calls from creditors and are considering bankruptcy, contact the Boston bankruptcy lawyers of Joshua Spirn & Associates at 1-800-975-5346.