The great depression refers to a period of economic crisis in United States together with other countries around the globe. It can be said to be the deepest, as well as the long-lasting economic downturn in western industrialized world. It started from the stock market crash in 1929 to 1939 as it wiped out millions of investor money, thus driving the Wall Street into a panic. Over those years, investment and consumer spending dropped significantly, thus raising the levels of unemployment as well as causing a steep reduction in industrial output as companies that failed were laying off their workers. By the year 1933, the great depression was at the peak as about 15 million Americans were unemployed as half of the banks in the country failed. President Franklin D. Roosevelt put some relief and reforms that at least reduced the catastrophe, but the war came to a certain end from the start of the World War II in 1939. All in all, what exactly caused this Great Depression?
The primary cause of Great Depression was the stock market crash in 1929. The economy of America went through recession in the summer of the year 1929 as unsold commodities started to pile up and consumer spending dropped significantly; all this slowed down production. As this happened, the stock prices rose. At the end of 1929, the prices had reached a certain level that could not be corrected by speculated future earnings. In October 24, 1929, some investors started to dump shares “en masse,” thus bursting the stock market. This was followed by “Black Thursday” that saw a record 12.9 million of shares being traded. Five days later, there was the “Black Tuesday," where 16 million worth of shares was traded. The aftermath was panic that hit the Wall Street. The consequence was millions of shares going worthless, and investors with stocks in margins being wiped out completely.
Again, consumer confidence was lost as the downturn in investment and spending led to business and factories slowing down construction and production thus started the firing workers. The few who maintained their jobs faced the wrath of low wages, as well as decreased buying power. This led to a majority of Americans being forced to go for credit as debts accumulated. Repossession and foreclosure went up steadily. The depression would later spread to other countries as adherence to gold standards that joined countries in fixed currency exchange was greatly affected thus extending the depression (especially in Europe).
The second cause of the Great Depression was bank failure during Hoover’s administration. Matters continued getting worse and, by 1930, there were four million Americans looking for employment. That number raised the unemployment level to 6 million by 1931. Within that period industrial production also dropped significantly by more than 50 Percent. The rise in unemployment led to an increase in the number of homeless people and people moving to towns as well as cities looking for employment. In 1930, bank panic began due to a large number of investors losing confidence in bank’s solvency thus demanding their deposits in cash. Banks had to liquidate loans meant to supplement their cash insufficiency reserve in hand. The move hit the banking industry in 1931 and 1932. By 1933, about 9,000 banks closed down. President Hoover’s administration tried to intervene through supporting such failing banks by giving them loans. The government wanted to support the banks so that they would in turn loan the businesses surrounding them to stabilize their operations.
Thirdly, the crash of the stock market brought about woes in the economy as people stopped buying items. The economic recession led to a reduction of item production, therefore, leading to a reduction in the workforce. People stopped buying goods and services; therefore, they went through installment plans due to item repossession. It led to the accumulation of inventory.
While businesses began going down, the government of United States formed Smoot-Hawley Tariff in the year 1930 meant to help and protect the American companies. The tariff led to high tax for imports, a situation that led to reduced trade (that existed between foreign countries and America) together with some economic retaliation.
Another reason that led to Great Depression though in a minor way is the drought condition. The drought that existed in Mississippi valley, in the year 1930 made many of the residents there be incapable of paying their taxes and other debts. The drought pushed some people to certain decisions such as the selling off their land or farms for no profit, but to accommodate such debts. The situation made this area be nicknamed as “the dust Bowl.”
However, with all this shortcomings in the America, some things happened that were meant to change the situation for better. Franklin D. Roosevelt won the election in 1932, amid the overwhelming situation in United States. To address the economic trouble, he called for four days of “bank holiday” meant for the congress to pass concrete legislation reforms and look into reopening those banks in a sound manner. Roosevelt addressed on how to reform and economy, create jobs and work on stimulating recovery. He sought to work on financial problems through creating the Federal Deposit Insurance Corporation (FDIC). The move was aimed at protecting depositors’ accounts, regulate stock exchange market as well as prevent abuses that led to the 1929 crash.
The Great Depression lasted for about ten years. The ten years can be termed as such a long period where the economy of US and other parts of the world experienced the historical flaw of all time. The great crash in the economy fell steadily in 1929. This made deep effects on employment as many people lost their jobs. One of the reasons it took too long was the poor leadership at that time. Hoover had no conclusive economic policies that would balance the state of market and financial systems in the country. The contradiction was encouraged by the crash of the stock market associated with the problem of finances in the banking system. The government faced the problem in the lack of confidence as well as extended policy decisions.
Changing of the government policy in 1933 saw employment start to grow gradually. The growth seemed to be slow because it took about eight years to make the economy rise to the status it used to be in the past four years. The timeline of the economy comeback could not be fast as people would want it to be fast.
The depression again took a long time since many banks had collapsed and majority of people were in great debts. Close to 9,000 banks had been shut down and this was an economic turmoil. Banks had liquefied their money into loans to pay for the deposits of the people. For the Roosevelt’s government to manage this problem, time had to be a major resource. Considering Roosevelt won the election amid the great depression in 1933, he had to take time coming up with sufficient reforms to address the situation. This had to be well monitored as the government had already aced the problem of loaning the collapsed banks. One of the reforms was to support the banks and come up with policies that would revive the American economy. Obviously, all this agendas had to take time before they became a reality. It was a challenge reviving around 9,000 banks and establishing a balanced economy for the collapsed industries. It had to be a step by step process since the government had to loan the banks while the banks would later loan the collapsed businesses. Therefore, this was another reason the Great Depression took a long period before the country could recover. Creating the employment opportunities was also a challenge that had to take time.
In conclusion, the Great Depression was a period of economic problems in the United States that existed from 1929 to 1939. Some of the causes of this depression included the stock market crash in 1929 that saw consumer spending drop as well as items pile up in their production sites. Millions of employees lost their jobs and businesses had to close down. Another cause was the failure of banks. About 9,000 banks were closed down amid the depression by the year 1933. Another cause was drought that hit Mississippi and made people sell their lands and properties under loss to pay their taxes. The depression took long since American government had already suffered tremendously in their economy. To recover, they had to take a certain period in regaining their financial potential and regain employment opportunities for its people.
Works Cited
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Robbins, Lionel. The Great Depression. Alabama: Ludwig von Mises Institute, 2007. Print.
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