Great Depression

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Great Depression

Introduction

The great depression signified a severe economic misery that was experienced worldwide. It followed the period after the second d world war. In the whole of the twentieth century, it became the deepest, longest, and widespread depression ever recorded. It began in the United States of America after the drop in stock prices from September 1929. During the month of October, stock market crash was worldwide news fondly remembered as the Black Tuesday. The great depression affected the rich and poor in several countries in equal measure. Profits, tax revenues, personal incomes of the people and prices dropped drastically. In the international scene, the trade had a down spiral of more than 50%. Cities that depended on heavy industry were hard dealt by the effects as construction was almost brought to a standstill. With the drop in crop prices, farming was negated while alternate jobs began reducing. Different economies began recovery at different times from 1930. The great depression occurred and lasted long due to aggregate of economic factors in the world setup.   

Discussion

Causes

One of the major causes of the great depression was the fact that spending by consumers began dropping. The unsold goods took up the trend and the pile up began. The pile up translated into slow production, as there was no profitability from the sale. Stock prices on the other hand had continued to rise. The levels attained could not be rationalized by the anticipated earnings from the future. The stock market had to crumble amidst all the pressures as several investors sought alternatives by dumping the shares in bulk. Panic was building up in Wall Street and this could be attributed by the number of share being traded on a daily. On the Black Thursday, 12.9 million shares had been traded as compared to an increase of about 3.1 million shares after only five days (Walton and Rockoff 422). The shares at the time were deemed worthless while the margin stocks by investors had to be wiped out.

            As the stock market crashed, consumer confidence had vanished to all-time low levels. The translation to production was evidenced by slower and slower downturns up to including spending. In the construction industries, workers began to be fired, as the managements could not sustain their tenure and incomes (Walton and Rockoff 431). Those who survived in the employment realized decreased wages while their buying power was limited due to the low levels of income and purchasing power could not be maintained. Individuals who relied on purchases in credit fell into massive debts while the repossessions and foreclosures soared to new heights. Gold was the standard mark of exchange and its adherence led to spreading of the depression from America into other parts of the world, beginning with Europe.

            Over the period of the nest three years, the crisis deepened despite assurances from the then president and other world leaders on improvements. Unemployment in America for example grew from four million to six million, as jobs were unavailable. Industrial production on a national level had dropped by point five. It was a common sight to see the number of homeless, hungry, and destitute Americans across the country. The farmers who had faced severe drought and drop in prices during the 1920s could not manage to harvest their produce, as it was not economically viable. The crops were left to rot in the field despite the staggering numbers of the starved citizens. During fall f 1930, banking panics in four waves commenced as the confidence by investors in banks solvency waned.

            Banks in the country were forced to liquidate the loans as means to supplement cash reserves that were insufficient. Government loans to the banks were increased as means to inject cash into businesses, which in turn would get the employees back. With President Roosevelt’s ascendancy to power, the government was vocal in passing legislation aimed at stabilization of agricultural and industrial production. The government was keen to stimulate recovery while encouraging and creating jobs. The financial system was targeted for reforms while the stock market was tasked with regulation and prevention of abuses that led to the crash of 1929. The hard road to recovery began from the 1933’s spring including the next three years (Walton and Rockoff 434. GDP recorded a growth of up to 9 percent per annum with the figure adjusted for inflation. However, a sharp recession was witnessed in 1937.

            During the recession, the government’s prerogative to obtain more reserve money caused a significant backdrop on the gains made. Employment and production were hampered up to the end of the decade. During this time, political movements of extremist nature had taken up arms in the European context. The rise of war, struggles and territorial acquisition for production and industrial strengthening increased the number of jobs in the private sector. The attack in Pearl Harbor led to declaration of war and this meant that the country’s factories had to revive the production in huge margins. The industrial expansion had to expand at the increasing demand and the unemployment rate subsequently reduced from it. At the time of the great depression, America had no social security as well as unemployment insurance (Walton and Rockoff 439). Later, congress passed legislation on the payment and provision to the unemployed and disabled while the old received pension.

Reasons for the Long Lasting Depression

One of the main reasons that made the great depression last long was the government policies at the time. The National Industrial Recovery Act passed in 1933 promoted the existence of cartels under the monopoly and increases of the large wages. The act had an aim of prosperity restoration. Instead, it offered the availability of collusion of sanctions and antitrust activity. It limited the need to curtail the formation of minimum prices while expansion was restricted within industries in a wide scale. In essence, the cartels granted an easier passage of their demands through passage of their wages and effects of the antitrust activities (Nardo 17). The public were left in limbo as they could not get employment and the spending power was severely affected. Their minimal wages could not help in meeting the fixed prices and this helped in dragging the depression further.

            The key financial institutions failed at the critical point. For example, the solvency of the banks despite the great help from the government through loans could not reverse the trends. The investors and the public lost faith and lacked trust in them. The value of the stocks and investments were generally on the decline and the investors decided to take up their assets and monetary values. The banks were therefore forced to liquidate their loans in order to supplement the cash reserves in their possession. Lack of confidence was responsible for the low levels of investment by the public and alternative purchasing. Monetary policies in the financial institutions could not halt the depression, as they had to be reviewed in order change the fortunes experienced up to including the stocks. The artificial expansion of credit fro the government contributed to the above.

            Overproduction of the agricultural and consumer goods contributed to the extension of the great depression. Fixing of the prices while the consumer spending was at the lowest increased the depression’s tenure. At the point where farmers could not get value for their produce, they had to leave yields in the fields to rot as the starving citizens continued to suffer. Disruptions in the world economy were also a factor especially in Europe. New political divisions, wars, increased debts all aggregated towards the stifle in economies and lengthening of the depression (Nardo 22). Increased protectionism was witnessed throughout for a considerable length of time. Protectionism heaped pressure in the intense regulatory environment and this caused a serious retardation towards the recovery from depression.    

Conclusion

Severe economic depression that was experienced worldwide is referred to as the great depression. It began in the United States from the period of 1930. It spread throughout the world in particular Europe. It was characterized by crumbling of the economies as consumer spending was dwindled with low personal incomes. Financial institutions were severely affected as they tried to remain afloat of the devastating effects. Policies had to be instituted in order to aid in the recovery process. Some of the reasons that contributed to the delay in recovery from the depression included income imbalance, government intervention and policies, increase n protectionism, disruptions in the economies of the world and growth retardation.

Works Cited

Nardo, Don. The Great Depression. San Diego, Calif: Greenhaven Press, 2005. Print.

Walton, Gary M, and Hugh Rockoff. History of the American Economy. Mason, Ohio: South-Western, 2010. Print.