Many experts have been comparing the US financial crisis to almost 80 years ago when the country fell into the Great Depression. No one could be blamed for such a comparison because it seems like everyday another bank is taken over or bailed out by the government.
However, such a comparison may be a bit pessimistic despite the fact the dust hasn’t even settled yet. The Great Depression was certainly worse with super high unemployment (25%) and thousands of banks collapsing all over the country. People lived in tented communities known as “Hoovervilles”, named after President Hoover, as a form of mockery of the administration at the time.
OK, so the problems in the US and the ripple effect over here in the UK is no picnic, however, so far unemployment in the US is around 6% and a government bail out is planned to deal with the financial problems, this hardly makes it the Great Depression.
We are not out of the financial crisis just yet and if more banking institutions collapse, there is the liklihood other sectors will go down with them. Obviously this would mean more job losses both here and the US.
With the Federal Reserve bailing out AIG last week, the troubled insurer threatened the derivatives market which is used by non-financial companies as a kind of insurance policy. For example, airlines use derivatives to protect themselves against rises in aviation fuel.
A $700 billion bailout package is in talks with the US government and the world is waiting with bated breath as to the whether or not this relief fund will be approved. Time will tell but the US economy is a not headed toward tented communities anytime soon.
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