Table of Contents
Introduction
Reasons
The Great Depression and its impact
Recuperation
Introduction
The Great Depression is the worst economic recession in American history. The economy had been experiencing a recession for the last two month and a decreasing GDP. Following the Wall Street crash it went into depression. This decline was caused by many factors, including high consumer debt, poorly regulated markets, and a lack of new high-growth industries. People were already feeling uncertain about the future after the U.S. Stock Exchange crash. Due to the crash, the U.S. currency value had decreased causing it to remain in depression.
CausesWell this economic decline had many causes, but Wall Street’s stock market collapse was the main one. This caused the economy to be unable pay off its debt. There are also other factors, like the lack high growth industries and the high rate in consumer debt. The U.S. was experiencing rapid growth and its wealth doubled from 1920 to 1929.
Stocks were the place where people acted recklessly, putting their savings, whether they be millionaires or janitors. The stock market experienced rapid growth in 1929. The stock market was inflated by the fact that production had dropped and unemployment increased. Wages in that period were low. Consumer credit was on the rise, food prices were falling and there was a drought.
During summer 1929 the American economy experienced a serious recession. Consumer spending was slowing and the unsold stock began to build up. This led to a further reduction in factory output. Stock prices rose and were at an all-time high by the end of 1929, unjustified by future earnings.
Impact of Great DepressionAfter most investors became nervous and began to sell overpriced stocks, what followed is what many had feared. The stock markets crashed. In one day, 12.9 millions shares were traded. Following another wave of Wall Street panic, millions of shares lost their value and those who purchased them “on margin” had to be wiped off.
In the aftermath of the stock-market crash, as consumer confidence disappeared, factories and businesses began to reduce production and fire their employees. Those who were fortunate enough to stay employed saw their wages fall and their purchasing power decrease. In the aftermath of the stock-market crash, when consumer confidence vanished, factories and other businesses began to slow down production and fire their workers. Those who remained employed saw their wages fall and buying power decrease. The Gold Standard was a global standard that spread the financial woes in the United States all over the world.
Despite assurances made by Herbert Hoover as well as other leaders in the country that the crises would end quickly, they continued to worsen during the next three-year period. In 1930, there were 4 million unemployed Americans; this number increased to 6 millions in 1931. In the meantime, industrial production in the United States dropped by half and the number of homeless Americans increased.
Farmers were not able to harvest their crop and left them rotting on the fields, while others were starving. The banking panic began in 1930 when investors began to lose confidence in their banks. They demanded cash deposits and forced the banks to liquidate the loans.
Hoover’s administration attempted to provide government loans in such a situation, hoping that banks would lend money to businesses and rehire employees. He believed that government shouldn’t intervene in economic affairs and it wasn’t their responsibility to create employment or give financial relief to citizens.
Franklin D. Roosevelt was elected President in 1932 when the United States was still in the midst of the Great Depression. Inauguration-day, each state of the United States had ordered all remaining banking institutions to close. The U.S. treasury did not have sufficient cash to pay government employees. He radiated calm optimism and declared that the only thing to fear was fear itself.
In order to deal with the economic problems of the country, he took immediate action. He announced a four-day holiday during which Congress would be able to pass reform legislation. All banks were required to close for this period and only those that had been deemed sound could reopen. The President also started a radio series in which he talked directly to the people. This “Fireside Chat” helped to restore the confidence of the public.
During his first 100-day term, the Roosevelt administration passed legislation to stabilize agricultural and industrial production, create employment, and stimulate economic recovery. Roosevelt also wanted to reform the banking system. He created the Federal Deposit Insurance Corporation for depositors to have a safe account and stability in the economy. The Securities and Exchange Commission was established to regulate and protect the stock market and to stop abuses that led up to the 1929 Crash.
RecoveryAfter early signs that the economy was recovering in 1933’s Spring, the economy continued improving for the next 3 years. During this time, real GDP growth averaged 9 percent annually. The Federal Reserve increased its reserve requirements in 1937. This led to a severe recession. While the economy improved again in 192038, this second contraction reversed many production and employment gains and prolonged the Great Depression’s effects until the end.
In Europe, the Depression had fueled extremist political movements. Most notably Adolf Hitler’s Nazi Regime in Germany. In 1939, Germany’s aggression caused war in Europe. The WPA focused on strengthening the United States military infrastructure, while maintaining its neutrality.
While the Great Depression has ended, its effects still can be felt today. The unemployment rate in the United States is currently 9.1 percent. From 1931 to 1942, the annual rates ranged between 9.9 percent and 24.9 percent. The peak level of unemployment has been well below the Great Depression’s peak. We have benefited from some lessons learned during the Great Depression by implementing automatic government stabilisers to the economy. This has prevented the devastating effects of a credit crunch.
