Boom and bust cycles are common in countries with financial markets. That's because financial markets work differently from other markets. In other markets, rising prices reduce demand, and vice-versa. In financial markets, rising prices increase demand, which in turn pushes prices even higher. As a result, financial markets are highly unstable. Panics and bubbles regularly follow each other. Unfortunately, these booms and busts effect the real economy, because ordinary people have assets which are affected by the gyrations of the market. When there's a bubble, people spend more, thereby increasing national income, GDP and employment. When values plummet, the opposite occurs. Bubbles are naturally self-correcting. If a crash leads to a sufficiently deep depression, on the other hand, it can go on indefinitely. In the absence of government regulation or intervention, a financial panic can destroy banks. That, in turn, destroys not just the value of people's financial assets, but their cash savings as well. In the most recent financial panic, $15 trillion of net wealth was erased. People reacted by cutting spending, which in turn reduced incomes and employment, which resulted in the recession, which reduced income even more. The government, fortunately, reacted by protecting the banks - so that people's money - their checking accounts, savings accounts, CDs - wouldn't also disappear. This prevented a recession from turning into a depression. People might survive the decimation of their 401k's, but they can't survive not being able to buy groceries, because checking account is gone. The second thing it did was to spend more into the economy than it was taxing. This is essential, because the Federal government is the only institution that has the power to increase spending when every other part of the economy is shutting down. When the government spends money into the economy that wasn't taxed, it increases private sector wealth by the same amount. The cumulative effect was to add several trillion dollars to the economy. While a relatively small amount compared to the losses, it was enough to get the economy growing again. Once the the recovery is secure, it becomes self-perpetuating.