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The Great Depression in The USA

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The Great Depression was the worst economic downturn in the history of The States. The economy was in recession and been facing declining GDP for the past two months and after the Wall Street crash the economy went into depression. There were many reasons for this decline in the economy, high consumer debt, ill-regulated markets, lack of high growth new industries, etc All this had put the economy in a state from where it would take a long time to recover. The U.S. stock exchange crash had already increased the uncertainty in the minds of the people and they were unsure about what was to follow. As a result of the crash, the value of the U.S. Dollar had declined causing the economy to stay in depression or making it unable to get out of the Great Depression.

Causes

Well there were many causes for this decline in the economy, but the stock market crash of Wall Street was a major one. This led to the inability of the economy to pay off the debt and there were other reasons as well which had contributed to this situation such as- the lack of high growth new industries, high rate of consumer debt, etc. The U.S. economy expanded rapidly and the nation’s wealth more than doubled itself between 1920 and 1929. The stock market, was where reckless speculation was observed, where everyone from millionaire tycoons to cooks janitors put their savings into stocks. As a result, the stock market reached it’s peak in 1929, experiencing rapid expansion. By that time, production levels had already declined and unemployment had risen, thereby leaving the stock prices much higher than their actual value. Wages at that time were low, consumer debt was increasing rapidly, the agricultural sector was struggling falling food prices and drought, and banks had excess of large loans that couldn’t be winded up. During the summer of 1929, the American economy entered a bold recession as the consumer spendings slowed and unsold goods began to pile up, which further slowed down factory production. The stock prices continued to rise and by the year end were sky high, which were unjustifiable by expected future earnings.

Impact of the Great Depression

As most of the nervous investors began selling overpriced shares, what happened next was what most had feared, the stock markets crashed rapidly. A Record 12.9 million shares were traded in a single day. After another wave of panic swept Wall Street, more amount of shares were traded and of then millions of shares ended up worthless, and those who had bought the stocks “on margin” were completely wiped out. In the wake of the stock market crash as the consumer confidence vanished, the decline in spending and investment led factories and other businesses to slow down the production process and begin firing their workers and those who were lucky enough to remain employed, their wages fell and buying power decreased. Many Americans who were forced to buy on credit fell in debt, and the number of foreclosures and repossessions increased steadily. The global adherence to the Gold Standard helped spread economic woes from the United States throughout the world, especially Europe.

Despite assurances from the President Herbert Hoover and other leaders that the crisis would run its course and would soon end, matters continued to get worse over the next three years. By 1930, 4 million American people were unemployed; that number rose to 6 million in 1931. Meanwhile the industrial production of the country reduced to half, the number of homeless people became more and more common in America’s towns and cities. Farmers could not afford to harvest their crops and were forced to leave them rotting in the fields whereas people elsewhere were starving. By 1930, large number of investors had lost confidence in the solvency of their banks and demanded the deposits in cash thereby forcing the banks to liquidate loans, to be added to their insufficient cash reserves in hand, this was the first of the four waves of marking the beginning of the banking panic.

In such situation Hoover’s administration tried to support the falling banks and other institutions with Government loans; hoping that the banks would in turn provide loans to businesses, thereby enabling them to hire back their employees. He believed that the Government should not directly intervene in the economy, and that it didn’t have the responsibility to create jobs or provide economic relief for its citizens. In 1932, the country was stuck in the depths of Great Depression and some 15 million people were unemployed, and Democrat Franklin D. Roosevelt won an overwhelming victory in the Presidential Election. Since the Inauguration Day, every U.S. State had ordered all remaining banks to close at the end of fourth wave of banking panic, and the U.S. treasury didn’t have enough cash to pay all Government workers. He projected a calm energy optimism, famously declaring that “the only thing we have to fear is fear itself”.

He took immediate action to address the country’s economic woes, by first announcing a four-day “bank holiday” during which Congress could pass reform legislation and all banks were to remain close and later reopen those banks determined to be sound. Also, he began a series of talks, addressing the public directly over the radio and these so called “Fireside Chats” went a long way towards restoring public confidence. During the first 100 days in office, his administration passed legislation that aimed to stablize industrial and agricultural production, create jobs and stimulate recovery. In addition, Roosevelt sought to reform the financial system, creating the Federal Deposit Insurance Corporation (FDIC) to provide safety to the depositor’s account, stability to the economy and the failing banking system and the Securities and Exchange Commission (SEC) to regulate the stock market and prevent abuses of the kind that led to the 1929 crash.

Recovery

After showing early signs of recovery beginning in the Spring of 1933, the economy continued to improve throughout the next three years, during which the real GDP grew at an average rate of 9 percent per year. A sharp recession hit in 1937, caused in part by the Federal Reserve’s decision to increase its requirements for money in reserve. Though the economy began improving again in 191938, this second severe contraction reversed many of the gains in production and employment and prolonged the effects of the Great Depression through end of the decade. Depression-era hardships had feuded the rise of extremist political movements in various European countries, most notably that of Adolf Hitler’s Nazi regime in Germany. Germany aggression led war to break out in Europe in 1939, and the WPA turned it’s attention to strengthening the military infrastructure of the United States, even as the country maintained its neutrality.

Current Scenario

Although the Great Depression had ended way back in 19th century but it’s effects can still be seen to some extent in today’s world. The current unemployment rate is 9.1 percent. The annual rates ranged from 9.9 percent to 24.9 percent, from 1931 to 1941. Peak unemployment since the start of the most recent recession remains well under half of the peak it reached during the Great Depression. Thankfully because of some of the lessons learnt from the Great Depression, we have adopted some automatic Government stabilisers in the economy to prevent the catastrophic results of a credit crisis.

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