Depressions are created when money disappears. People suddenly become poorer, and they spend less money. With less demand for goods and services, production declines and prices fall, causing a downward spiral of unemployment and falling incomes.
Over 20 trillion dollars has evaporated from the market value of the world's companies since the financial meltdown began. Obviously this has not just bankrupted Wall Street. Pension funds, 401ks, and municipalities hold stocks and securities that deflated along with the stock market.
American households have lost $10 trillion, a record decline in our standard of living. Most of this represents the loss of home equity from the collapsing housing market. Adding insult to injury, one in five US homebuyers now owe more on their mortgages than their homes are worth.
This is not a � ���"severe recession� �� �, we are in an economic depression, no matter what the government and pundits claim.
Three banks failed in the United States in 2007, another 25 failed in 2008. So far this year 20 banks have gone into receivership, and the FDIC warns that the list of troubled banks is increasing. If not for the Federal Deposit Insurance Corporation, we would have bank runs in this country again.
During the Great Depression, depositors rushed to the banks to withdraw their money as the economy collapsed. Since we have a fractional reserve banking system, banks did not have enough cash on hand to cover the withdrawals. There was no insurance for deposits, so those who were first in line got their money, everyone else lost their savings, and the bank went under.
By the time Franklin D. Roosevelt was elected, banks had either failed, or placed restrictions on how much money depositors could withdraw. On March 6th, 1933 the President declared a national "bank holiday", closing the banks for a week. FDR reassured the American People that this would solve the bank crisis with the famous line; "The only thing we have to fear is fear itself."
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