The Great Depression vs. Credit Crisis Comparisons

Housing Crisis

Over the past 100 years, the two main economic eras usually discussed as the most negative or turbulent times were The Great Depression (1929 – 1939) and the Credit Crisis (2007 onward). While some economists and financial analysts believe that the Credit Crisis officially ended in 2012 or 2013, others have suggested that the Credit Crisis continues onward today in spite of near record stock and real estate prices.

During the first 10 months of 1930, an estimated 744 banks failed. Over the entire span of the 1930s, a total of 9,000 banks failed. In the most troublesome economic year of 1933, upwards of 4,000 banks failed in just that year alone. Bank runs became quite commonplace after rumors floated around towns or cities about another potential bank collapse as partly showcased in the classic Jimmy Stewart film entitled It’s a Wonderful Life. Yes, bank customers would literally run to their bank to withdraw some or all of their cash out before the bank collapsed.

Back during this time period prior to the introduction of President Franklin Roosevelt’s New Deal bailout and recovery program, the FDIC (Federal Deposit Insurance Fund) had not yet been formed to help insure customer losses. More and more Americans began to lose faith in the banking system and asset values related to stocks and homes were falling at a rapid pace. As a result, people searched for new solutions that would later come in the form of Roosevelt’s New Deal plan just like how many investors have searched for assistance since the last housing peak in 2006 or 2007.

The New Deal

Within the first 100 days of being sworn into office in 1933, President Franklin D. Roosevelt enacted the New Deal plan and several other key bailout programs that were designed with the intent to stabilize the banking system and overall U.S. economy. At the lowest point in the 1930s, industrial production fell 47%, real gross domestic product (GDP) declined 30%, and the total national unemployment rate almost reached a whopping 25%.

The New Deal program also included the Civilian Conservation Corps (CCC) public work relief program that was designed to create millions of new jobs for young unemployed men by way of offering road and highway construction jobs as well as jobs associated with national parks and other public works projects. The government would step in to try to replace so many lost private sector jobs by increasing both their annual expenditures and boosting the GDP as a result.

U.S. Gross Domestic Product (1929 – 1933)

1929: $103.6 billion
1930: $91.2 billion
1931: $76.5 billion
1932: $58.7 billion
1933: $56.4 billion

New Deal’s enactment – March 1933

1934: $66.8 billion
1935: $74.3 billion
1936: $84.9 billion
1937: $93 billion
1938: $87.4 billion
1939: $93.5 billion

Government Expenditures (Hoover Administration: 1929 – 1932)

1929: $9.4 billion
1930: $10.0 billion
1931: $9.9 billion
1932: $8.7 billion

The average government spending as a percentage of overall national GDP (gross domestic product) during these same 1929 to 1932 years was equal to 12.0%.

Government Expenditures (Roosevelt’s New Deal: 1933 – 1939)

1933: $8.7 billion
1934: $10.5 billion
1935: $10.9 billion
1936: $13.1 billion
1937: $12.8 billion
1938: $13.8 billion
1939: $14.8 billion

The average government spending during the Roosevelt years (1933 – 1939) as a percentage of GDP was closer to 15.4%.

Foreclosure Rates – Great Depression vs. Credit Crisis

Back during some of the worst financial years in the first half of the 1930s, the national foreclosure rate exceeded 1% from 1931 to 1935, according to an economist, David C. Wheelock, at the Federal Reserve Bank of St. Louis. In 1933, there were upwards of 1,000 home loans per day that were being foreclosed upon by banks.

Between January 2007 and December 2011, there were more than four million completed foreclosures and more than 8.2 million foreclosure starts, per RealtyTrac (https://www.realtytrac.com/ ). A very high percentage of these foreclosure filings were in the state of California.

The real estate data firm named CoreLogic released data that listed upwards of 1.4 million homes, or a staggeringly high 3.4% of all homes with a mortgage in the U.S., were in some stage of foreclosure in May 2012. One year prior in May 2011, the national foreclosure rates were even higher at 1.5 million foreclosed properties, or 3.5% of all mortgage homes. In 1935, the national population base was 127 million as compared with today’s more recent 326 million numbers. With or without factoring in today’s larger population numbers, the statistical foreclosure percentage rates for all mortgaged homes between 2007 and 2012 were much higher than the worst years during The Great Depression (3.5% vs. 1%).

Between June 2006 near the last national housing peak and early 2011, the Zillow Home Value Index that is tied to home values nationwide fell a shocking 26% from peak highs to peak lows in just over four years. As a comparison, national home values fell a slightly less 25.9% percentage amount between the previous home market peak of 1928 and the worst year of 1933.

The 21st century’s version of the New Deal program was the Emergency Stabilization Act of 2008 that was signed by former President George W. Bush on October 3, 2008. This financial and economic bailout program provided banks, insurance companies, and others with upwards of $700 billion in bailout funds, including almost every large bank described as “too big to fail” (e.g., Bank of America, Citigroup, Wells Fargo, and JPMorgan Chase) because their closures could be cataclysmic or extremely dire to the global economy. Additionally, the FDIC banking limits were increased from $100,000 to $250,000 per account in order to boost faith in the banking system once again just like back when FDIC was introduced through the New Deal program.

In many ways, the housing and economic numbers during both eras were quite similar as were many of the bailout strategies. Shortly after the end of The Great Depression and World War II, the U.S. would experience several decades of very positive “boom” years. Let’s hope that the future years from today are just as bullish and solid, especially for the housing sector.

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