THE

GREAT DEPRESSION

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UTKARSH GARG
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 The Great Depression was the worst economic downturn in US history. It
began in 1929 and did not abate until the end of the 1930s and lasted till
1939.The stock market crash of October 1929 signalled the beginning of the
Great Depression. Black Thursday," October 24, 1929, that's when traders
sold 12.9 million shares of stock in one day. It was triple the usual amount.
Over the next four days, stock prices fell 23 percent. Five days later, on
October 29, 1929 or Black Tuesday, some 16 million shares were traded
after another wave of panic swept Wall Street.

The stock market crash sent The Wall Street into a panic and wiped out
millions of investors. Over the next several years, consumer spending and
investment dropped, causing steep declines in industrial output and employment
as failing companies laid off workers. By 1933, when the Great Depression
reached its lowest point, some 15 million Americans were unemployed and
nearly half the countrys banks had failed. Unemployment had risen from 3
percent to 25 percent of the nations workforce. Wages for those who still had
jobs fell 42 percent. Gross domestic product was cut in half, from $103 billion
to $55 billion. That was partly because of deflation. Prices fell 10 percent each
year. The Depression caused many farmers to lose their farms. At the same
time, years of over cultivation and a drought created the Dust Bowl in the
Midwest. It ended agriculture in a previously fertile region.

What caused The Great Depression?

According to Ben Bernanke, the past chairman of the Federal Reserve, the
central bank helped create the Depression.

It used tight monetary policies when it should have done the opposite. Bernanke
highlighted its five critical mistakes.

1. The Fed began raising the fed funds rate in the spring of 1928. It kept
increasing it through a recession that began August 1929. That's what
caused the stock market crash in October 1929.
2. When the stock market crashed, investors turned to the currency markets.
At that time, the gold standard supported the value of the dollars held by
the U.S. government. Speculators began trading in their dollars for gold
September 1931. That created a run on the dollar.
 3. The Fed raised interest rates again to preserve the dollar's value. That
further restricted the availability of money for businesses. More
bankruptcies followed.
4. The Fed did not increase the supply of money to combat deflation.
5. Investors withdrew all their deposits from banks. The failure of the banks
created more panic. The Fed ignored the banks' plight. This situation
destroyed any of consumers remaining confidence in financial
institutions. Most people withdrew their cash and put it under their
mattresses. That further decreased the money supply.

The Fed did not put enough money in circulation to get the economy going
again. Instead, the Fed allowed total supply of U.S. dollars to fall 30 percent.

Bank Runs and The Hoover Administration

Despite assurances from President Herbert Hoover and other leaders that the
crisis would run its course, matters continued to get worse over the next three
years. By 1930, 4 million Americans looking for work could not find it; that
number had risen to 6 million in 1931.

Meanwhile, the countrys industrial production had dropped by half. Bread

lines, soup kitchens and rising numbers of homeless people became more and
more common in Americas towns and cities. Farmers couldnt afford to harvest
their crops, and were forced to leave them rotting in the fields while people
elsewhere starved.

In the fall of 1930, the first of four waves of banking panics began, as large
numbers of investors lost confidence in the solvency of their banks and
demanded deposits in cash, forcing banks to liquidate loans in order to
supplement their insufficient cash reserves on hand. Bank runs swept the United
States again in the spring and fall of 1931 and the fall of 1932, and by early
1933 thousands of banks had closed their doors.

In the face of this dire situation, Hoovers administration tried supporting failing
banks and other institutions with government loans; the idea was that the banks
in turn would loan to businesses, which would be able to hire back their
employees.
The long, hard road to recovery
Among the programs and institutions of the New Deal that aided in recovery
from the Great Depression were the Tennessee Valley Authority (TVA), which
built dams and hydroelectric projects to control flooding and provide electric
power to the impoverished Tennessee Valley region, and the Works Progress
Administration (WPA), a permanent jobs program that employed 8.5 million
people from 1935 to 1943.

After showing early signs of recovery beginning in the spring of 1933, the
economy continued to improve throughout the next three years, during which
real GDP (adjusted for inflation) grew at an average rate of 9 percent per year.
A sharp recession hit in 1937, caused in part by the Federal Reserves decision
to increase its requirements for money in reserve. Though the economy began
improving again in 1938, this second severe contraction reversed many of the
gains in production and employment and prolonged the effects of the Great
Depression through the end of the decade.

The New Deal

When Franklin Delano Roosevelt took office in 1933, he enacted a range of
experimental programs to combat the Great Depression.

The New Deal created a broad range of federal government programs that
sought to offer economic relief to the suffering, regulate private industry, and
grow the economy. The New Deal is often summed up by the Three Rs:

1. Relief (for the unemployed)

2. Recovery (of the economy through federal spending and job creation),
and
3. Reform (of capitalism, by means of regulatory legislation and the creation
of new social welfare programs).

Roosevelts New Deal expanded the size and scope of the federal government
considerably, and in doing so fundamentally reshaped American political
culture around the principle that the government is responsible for the welfare
of its citizens.
What Ended the Great Depression of 1929?
In 1932, the country elected Franklin D. Roosevelt as president. He promised to
create federal government programs to end the Great Depression. Within 100
days, he signed The New Deal into law. It created 42 new agencies. They were
designed to create jobs, allow unionization and provide unemployment
insurance. Many of these programs still exist. They include Social Security, the
Securities and Exchange Commission, and the Federal Deposit Insurance
Corporation. These programs help safeguard the economy and prevent another
depression.

Many argue that World War II, not the New Deal, ended the Depression. But if
FDR had spent as much on the New Deal as he did during the War, it would
have ended the Depression.

In fact, WWII had its roots in the Depression. Financial stress made Germans
desperate enough to elect Adolf Hitler's Nazi party to a majority in 1933. If
Franklin D. Roosevelt had spent enough on the New Deal to end the Depression
before Hitler rose to power, World War II might never have happened.

The Japanese attack on Pearl Harbor in December 1941 led to Americas entry
into World War II, and the nations factories went back in full production mode.
This expanding industrial production, as well as widespread conscription
beginning in 1942, reduced the unemployment rate to below its pre-Depression
level.

When the Great Depression began, the United States was the only industrialized
country in the world without some form of unemployment insurance or social
security. In 1935, Congress passed the Social Security Act, which for the first
time provided Americans with unemployment, disability and pensions for old
age.

Could a Great Depression Happen Again?

A depression on the same scale could not happen the same way. Central banks
around the world, including the U.S. Federal Reserve, have learned from the
past. They know how to use monetary policy to manage the economy.
Facts
1. The crash on Wall Street in 1929 is believed to be a major cause of the
Great Depression. The worst market crash occurred on a Tuesday, and
that day earned the nickname Black Tuesday.
2. Other causes of the Great Depression have been determined to be the
burst of a credit bubble, a weak banking system, and overproduction.
3. On Black Tuesday $14 million was lost. During that week the total lost
was $30 million.
4. As a result of the stock market crash many people committed suicide by
jumping from windows in New York City.
5. Herbert Hoover was the president when the Great Depression began. He
made the mistake in 1930 of telling Americans that the worst was over.
He was very wrong.
6. The unemployment rate between 1933 and 1934 was one in four people
(25%). It would not fall below 10% until the Second World War began.
7. It is estimated that almost half of the children in the United States did not
have enough food, proper housing, or medical care during the Great
Depression.
8. The board game Monopoly was released in 1935 and became very
popular.
9. Crime became a way of life for many during the Great Depression as it
was almost impossible to find work.
10.In New York City approximately 6000 people tried to sell apples to
support themselves. They peddled the apples on the street.
11.Approximately 1.5 million men abandoned their families during the Great
Depression, leaving wives and children with no income or support.
12.The dust storms and severe drought in the 1930s made the Great
Depression even worse as many farmers were forced to abandon their
land.