Yeah, I guess you can say things went pretty poorly in 2008. Stocks posted one of the worst years on record, with the
falling more than 40% through late December. Once-proud Wall Street firms such as Lehman Brothers and Bear Stearns collapsed or were forced into mergers at fire-sale prices. Home prices continued to plummet and consumer spending slowed to a drip, leading to loads of worries for the nation's retail corps.
Gulp. So what's next? Of all the doomsday prognostications about the current financial crisis, one looming question stands out: Will people look at 2008 as the start of the next Great Depression? Are we in for another round of soup lines, ballooning unemployment and street-corner entreaties of "Brother, can you spare a dime?"
Fact is, no one knows exactly how deeply or for how long the current recession (which officially started in
) will extend. The Great Depression started in August 1929 and lasted a whopping 43 months. The nation's unemployment rate stayed above 20% for four straight years, from 1932 to 1935.
By contrast, the 11 recessions since World War II have lasted an average of roughly 10 months. And during that time, the annual unemployment rate has remained in the single digits. But while there may not be an end in sight, many experts argue that today's economic crisis is far removed from the one that led to the last depression.
One reason is that today's banking system, despite all its troubles, may be better equipped to weather the financial storm. During the Great Depression, more than 9,000 U.S. banks failed, shutting their doors and often leaving depositors out in the cold. This year, just two dozen or so U.S. banks have failed.
What's more, today when banks go under they are ushered into receivership by the Federal Deposit Insurance Corp., the governmental agency created in 1933 to protect depositors' assets. That means most depositors' assets are safe even if the bank collapses under the weight of its bad loans or through other financial mismanagement. As an added protection, the FDIC in October temporarily increased the amount it insures per depositor at each institution from $100,000 to $250,000.
Meanwhile, many have noted the difference in attitude among government finance officials in 1929 and today. Back then, officials from President Herbert Hoover to Treasury Secretary Andrew Mellon stood pat, optimistic that the stock market crash in October 1929 was just a minor bump in the road and that the free-market economy would correct itself in due time.
This time, however, the government has been proactive in trying to head off further economic travails. For starters, the
has steadily cut key interest rates since September 2007, and recently moved the federal funds rate to between zero and 0.25% -- the lowest level in history.
Meanwhile, Congress in October narrowly approved $700 billion to bail out the nation's banks, and the Federal Reserve the following month signed off on an $800 billion stimulus package to help unfreeze the tight credit markets. And billions more in loans and other financial assistance have been promised to the beleaguered auto industry and homeowners facing foreclosure.
While some cheer for the government intervention, others argue that these bailout dollars will only end up digging the U.S. economy deeper into the hole. So which will it be? At this point, it's too soon to tell. But just like during the Depression, each day brings the economy one step closer to a recovery. Some things never change.