PRESENTED BY

VIVEK RAJGOPALAN
SUNIL K

 Introduction

Evolution

Phases Of Depression Causes Of Depression Sources Of Recovery Effects Of Depression

Great Depression worldwide economic downturn that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world. Although the Depression originated in the United States, it resulted in drastic declines in output, severe unemployment, and acute deflation in almost every country of the globe. But its social and cultural effects were no less staggering, especially in the United States, where the Great Depression ranks second only to the Civil War as the gravest crisis in American history.

 Booming

Strong Economy in 1920sbut

a)
b) c) d) e) f) g)

h)

Its the Roaring Twenties! No trend inflation High productivity growth 1922-1929, GNP grew at 4.7%, Unemployment averaged 3.7%. BUT: Weak American Agriculture: low prices, high debt, weak banks BUT: Weak Europe: reparations, debts to U.S., slow growth, gold standard fragile (overvalued , UK slumps) and (undervalued FF, France booms) BUT: U.S. Stock market boom halts foreign loans to Germany, Eastern Europe and Latin America

 Beginning
a)

Shocks, 1928-1929

b) c) d) e) f) g)

h)

Spring 1927 U.S. expansionary monetary policy to ease pressure on the British balance of payments. Critics assert policy too easy, and allows stock market boom to ignite Fed tightens policy in 1928 (discount rate 3 to 5%, and there is little increase in total money or credit for 1928-1929. U.S. stock market boom begins March 1928. Commercial paper market vanishes July 1929 raises discount rate from 5 to 6%. But July-August is peak of business cycle. Recession begins Summer 1929 October 1929 U.S. Stock market crash: wealth effectlowers consumption and investment, credit effectreduces value of collateral and hence lending Smoot-Hawley tariff 1929 by U.S. induces retaliatory tariffs by other countries, international trade declines

Aggravating Shocks, 1930-1933 a) Banking Panics, 1930, 1931, 1933 b) Failure of the Fed to Pursue Expansionary Policy c) Collapse of Gold Standard: Austria, Germany leave the gold standard, Britain departs after a run on the pound in September 1931 d) U.S. begins losing gold, trade deficits and capital flight. From Rock Bottom to Recovery, 1933-1936 a) Bank Holiday March 1933 b) U.S. abandons the Gold Standard March 1933 c) New Deal Banking and Securities Legislation d) Monetary Expansion e) Minimal Fiscal Policy
f)

The 1937-1938 Recession

a)

National Industrial Recovery Act (NIRA) The Fed Raises Reserve Requirements

The Recovery, 1939-1941 a) Monetary Expansion b) Fiscal Expansion in preparation for war.

The fundamental cause of the Great Depression in the United States was a decline in spending (sometimes referred to as aggregate demand), which led to a decline in production as manufacturers and merchandisers noticed an unintended rise in inventories. However, a variety of other factors also influenced the downturn in various countries. Stock market crash Banking panics and monetary contraction The gold standard International lending and trade

 F.D.

Roosevelt takes emergency powers granted by Congress in the 100 days. FDR allows the dollar to depreciatesets new value for gold in 1934: from $20.36 per ounce to $35 per ounce. Huge revaluation of big U.S. gold stocks. Treasury issues gold certificates equal in value to increase and deposits them with the Fed. As government spends them, they enter the monetary base. High powered money increased 12% between April 1933 and April 1934. Devaluation also improved the competitiveness of U.S. goodsrise in the trade balance. Devaluation attracted capital flows from Europe, especially with Hitlers rise to power. High powered money rises 40% from April 1934 to April 1937. Result: real interest rates fall and recovery of investment and consumer durable spending.

1.

2.
3. 4. 5. 6. 7.

8.
9.

Activist Monetary Policy Activist Fiscal Policy---idea of cyclically balanced budget Insurance and Regulation of the Financial Sector Agricultural Regulation Growth of Government and shift in Federalism Growth of Unions Genesis of Social Security Smoot-Hawley Tariff of 1929 to the WTO The IMF and World Bank

Thank You