The U.S. is in a recession, and some predict that it will turn into the next Great Depression. Before you get worried, however, remember the protections you have now that weren't available in the 1930s. The economic road ahead is poorly lit. Voices from the backseat are whispering that this route is leading straight towards the dead-end of depression. How reliable are those backseat drivers?
In October, CNN/Opinion Research conducted a poll to measure Americans' thoughts on the possibility of another Great Depression. Survey respondents were told that the Great Depression was characterized by 25 percent unemployment, as well as rampant homelessness and hunger. They were then asked to measure the likelihood that these conditions could again befall the U.S. Nearly 60 percent of them indicated that a depression is either "very likely" or "somewhat likely."
Clearly, the media and Internet blogs have done a great job sewing the seeds of panic during the current recession. It's true that there are similarities between the events preceding the Great Depression and what's happening now. Back then, bank failures were common, the stock market was unstable, unemployment was rising, and the mortgage industry was working through increasing foreclosures. But it's also true that there are some major differences between 2008 and 1929-and those differences are likely to dictate the outcome.
A world without deposit insurance
During the Great Depression, more than 9,000 banks around the country collapsed. These failures resulted in depositor losses of $140 billion. The money simply vanished, and depositors had no recourse to get it back.
Compare that to what's happened so far in this current recession. As of mid-December, 25 banks have failed. Notably, depositors have been reimbursed by the FDIC for 100 percent of their insured funds. The FDIC has reimbursed a portion of uninsured deposits, as well. And, as a precautionary measure against additional failures, Congress raised the individual insurance limit significantly, from $100,000 to $250,000.
Unemployment insurance benefits
The 25 percent of American workers who lost their paychecks during the Great Depression were left to fend for themselves financially. Unemployment insurance didn't exist in this country before 1932, and it didn't become widely available until after 1935. Since most households during that era were supported by one wage earner, a single job lost would often put several people out on the street.
Today, U.S. workers can rely on unemployment compensation to cover their basic needs. And, because of the current recession, Congress recently took action in this arena also, lengthening the maximum unemployment assistance period by seven weeks. Those households that have two wage earners will have to lose two jobs and run out of unemployment eligibility before they'll feel the same kind of hardship felt during the Great Depression.
The protections of bank deposits and unemployment insurance, not to mention Medicare and Social Security, should go a long way towards limiting the destitution created by this current economic recession. The road ahead may be dark, but another Great Depression isn't likely.