Finance

The Great Depression of 21st Century Coming Soon

by Giz TimesJune 27, 2015

The period between 1929 and 1930 was a severe period of economic depression, also known as the Great Depression. The worldwide GDP fell by 15% from 1929 to 1932. The Great Depression not only affected the rich countries, but poor countries were also adversely affected by it. The depression originated in the United States, after the fall in stock prices that began around September 4, 1929, and became worldwide news with the stock market crash of October 29, 1929 also known as Black Tuesday.

RBI Governor Raghuram Rajan told to an audience at the London Business School on Thursday that he do worry that they might slowly slip into the kinds of problems that they had faced during the Great Depression.He further added that this problem is in the world and not only a problem in the industrial countries or emerging markets. Moreover, he also said,” We need rules of the game in order to effect a better solution. I think it is time to start debating what should the global rules of the game be on what is allowed in terms of central bank action”.

According to the analyses done by F. PROPERTY MASTERS at the time of the Great Depression of 1930 countries tried to solve the problem by devaluing their currencies against other countries in order to increase their international competitiveness. The main of the countries was to increase the export and decrease the import which in turn would help businesses within a country and hence, creates economic growth. When a currency is devalued by any country, its exports become competitive. This is a good thing for that country. Nevertheless, it also means that the exports of another country become uncompetitive. This leads to economic problems in these countries, forcing them to devalue their currencies as well in a bid to shore up their exports. And eventually it becomes a race to the bottom unleashing a currency war.

And it is this currency war that Rajan was talking about in his latest speech. The “growth out of nowhere” phrase was in response to the money printing that has been carried out by the developed economies. And the impact of that has been a currency war where “we are in fact shifting growth from each other, rather than creating growth”.

We hope that we will definitely find a solution to this problem and try to avoid a condition as that of The Great Depression of 1930. You can follow Giztimes on Facebook, twitter and Google Plus for more related stuff !

Author : Gaurav Suneja

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