The Great Depression of the 1930s
Russia has invaded Ukraine and the biggest cities of Ukraine are being destroyed into rubble. This can take an uglier turn if the USA and NATO are involved in the same. The USA has spent over 6.4 Trillion USD on wars that were just after 9/11. So no undoubtedly this affects the macroeconomic factors or GDP of the USA. So does it affect the economy in the long run?
The Great Depression of 1930 is the proof of the catastrophic effects of a war that happened or was about to happen. This article will uncover the facts and timeline of The Great Depression of the 1930s and will further discover the biggest reasons and how such a disaster can be prevented.
What and Where? The overview of the great depression
The Great Depression of the 1930s was a severe global great depression that originated in the United States. It was the longest, deepest, and most widespread global economic crisis of the 20th Century and is still used as an example to prove how intensely the global economy can decline.
Timeline of the Catastrophe
- The Forgotten Depression: As the counter effects of World War 1, a short depression from 1920-1921 lasted worldwide where the US Stock Market fell by 50% and the corporate profits fell by nearly over 90%. This attracted a lot of news
- The Roaring 20s: The Americans came to know about the stock market more and more and people dove into the market blindly. The frenzy of investments affected both the real estate markets and the NYSE. This increased the money supply and fuelled the prices of assets unprecedently with the frenzied demand.
- The Federal Reserve: The Fed was created in 1913 and it remained inactive in its first 8 years of incorporation. After recovering from the Short Depression in 1921, the Fed increased the money supply and kept the interest rates low throughout the decade. This created a huge surplus of money supply growth and caused the stock market bubble and the real estate bubble.
- October 29, 1929, the Black Tuesday: In the United States of America major stocks were seen to rise highly on September 4. This kept on till October 24th when the bubble was burst. This fall in prices kept on even the next week. The DJIA fell over 20% on 28th and 29th October and the market crashed. October 29th is marked as the Black Tuesday
- Liquidity Crunch: After the Bubbles burst, the Fed’s policy was to cut the money supply to nearly a third which caused severe liquidity problems and choked off hopes for all small banks to recover. The Fed failed to inject cash into the economy and this with the bank laws made the survival of the financial institutions extremely difficult and the world saw the American banks fail or somehow struggle to survive the massive withdrawal of deposits.
- Hoover’s Policies: Throughout 1930-1932 Hoover’s policies were fundamental to protect the jobs and individual and corporate income levels before the crash. His policies encourage businesses to raise wages and avoid layoffs. He stopped immigration from other lands to avoid low-skill labor from increasing. He kept the prices high when the prices should have naturally fallen. The people were burnt badly with cash and this even prevented the foreign companies to trade as they did not want to trade at overpriced American goods. Taking this crash across the globe.
- Spreading the Calamity: This market crash created a domino effect affecting all the countries in the world. This hit in Europe in 1931 when both the USA and Europe were in the ripples of the crash and were hit with the full force of the effects.
- Boden-Kredit Ansalt: Austria’s most important bank, Boden-Kredit Ansalt collapsed as a result of the crashed economic calamity in 1931. This showed the worst possible scenario of the great depression in Europe.
- Soaring Unemployment: The unemployment rate which was at 3.2% in 1929 was over 25% in 1933.
- President Roosevelt and the New Deal: When President Roosevelt was elected in 1933, the financial system was about to collapse. He announced a bank holiday so that people would stop the panicked withdrawal. He brought in the New Deal which was loosely based on Keynesian Economics.
- The New Deal and its effect (1933-1940): The New Deal was based on the fact the government can and should stimulate the economy to release an unprecedented series of programs that were designed to bolster the nation’s business, reduce unemployment, and protect of the public. Several Economists argue that Roosevelt’s New Deal was just several of Hoover’s interventions on a larger scale. However, it somehow did manage to stabilize the economy, and his infrastructural programs opened up a lot of employment.
- World War 2: Around 1941-1942 the Great depression started to disappear that was around World War 2 when the USA was just about to enter. The unemployment rate fell from 8 million in 1940 and 1 million in 1943. However, it should be noted that over 16 million Americans were recruited to join the forces for the war. While, in the private sector, real unemployment soared during the war. Wartime also resulted in the decline in the standard of living.
- Post World War 2: The war opened up a great number of international trading channels and the international governments opened up their markets for inexpensive products and this created a fiscal stimulus. Within 1 year of the war ending, the private investments tripled. It took only a few years for the stock market to break into a full bull run.
Main Causes of The Great Depression
- The Disaster’s biggest cause was the low-interest rates and increased money supply in the early 20s. The Americans were heavily drawn towards the Stock Market and all the extra cash they had was invested heavily in the stock market and the real estate. People started investing without proper speculations and this created a bubble that had to burst with a huge blow.
- The disaster management done by the Federal Reserve was one of the biggest reasons for the transition of a global recession to great depression. The Federal Reserve cut down the entire money supply when it should have injected money into the country.
- With the reduced money supply in the economy, banks started to fail. This made the people withdraw their money from banks out of panic. Further worsening the state of all the financial institutions.
- Due to the crippling state of the United States Financial Institutions, the other countries dependent on the US reduced taking loans from them due to the big rates of interest. Other policies to protect the people of America that closed the economy further, made it difficult for overseas trades and interactions with other countries.
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