Great Depression

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What is it?

The Great Depression is the term given to the period of severe global economic malaise that struck between 1929 and 1939.

In economic terms, a depression is usually defined as a decline in gross domestic product (GDP) of 10% or more, but in the Great Depression, the decline was a lot more precipitous.

Between 1929 and 1933, US GDP fell 30%, according to the St Louis Fed. Over the same period, US car sales fell from 4.5m to 1.1m, according to the Financial Times, and didn't climb back above their previous peak for 20 years.

Unsurprisingly, unemployment rose as a result - in the UK it hit 22%, and in the US it hit 24%, according to the Centre for Economic Policy Research.

What's it got to do with the financial crisis?

One feature of the Great Depression was bank failures. In 1929, there were 25,000 banks, according to The Econ Review. By 1933, only 15,000 were left.

As banks failed during the Great Depression, the remaining institutions became less and less prepared to make loans - and when they did do so, they charged punitively high rates of interest (effectively a credit crunch).

As early as June 2007, the Bank for International Settlements warned that lending had spiralled out of control (Telegraph) and that a depression could ensue as banks sought to re-establish capital adequacy ratios.

Last updated on 7 September 2009.

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