Ssush17: Great Depressionus History

admin



Great Depression A period of great economic hardship throughout the world that lasted from 1929 until WWII mobilization at the end of 1941. You can directly support Crash Course at Subscribe for as little as $0 to keep up with everything we're doing. The economic crisis and period of low business activity in the U.S. And other countries, roughly beginning with the stock-market crash in October, 1929, and continuing through most of the 1930s. Describe modern forms of cultural expression; include Louis Armstrong and the origins of jazz, Langston Hughes and the Harlem Renaissance, Irving Berlin, and Tin Pan Alley. SUSH17 The student will analyze the causes and consequences of the Great Depression.

—More than the Stock Market Crash

The Great Depression, a worldwide economic downturn, hiting the U.S. in 1929 and lasting until about 1939. It is the longest and most severe depression experienced by the U.S. with staggering social and cultural effects. The Great Depression, the worst economic depression in US history was not brought about by one cause but rather a myriad of factors. These included a combination of domestic and worldwide conditions while there is no list of causes there are some agreed upon reasons for the Great Depression. The effects of the Great Depression were felt across the world. The Depression was a direct cause of extremism throughout the world leading to Fascism in Italy, Nazism in Germany and extreme Bushido in Japan with the rise of the Black Dragon Society (http://academic.mu.edu/meissnerd/depression.htm see also http://www.willamette.edu/~rloftus/moremilitarism.html).

Bank Failures

Throughout the 1930s over 9,000 banks failed. Many of these banks fail, because they have made loans to stock market speculators that cannot be repaid after the stock market collapse of 1929. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as willing to create new loans. This exacerbated the situation leading to less and less expenditures. On Sunday 5 March 1933, President Franklin D. Roosevelt declared a four-day banking holiday and temporarily closed all U.S. banks and the nations stock exchanges. The Presidnet did not reopen the banks on 9 March as planned but kept them closed another thee days. This was done so the FDIC could examine nearly 8,000 state-chartered banks that were not members of the Federal Reserve Board (FRB). On 12 March in his first Fireside Chat Roosevelt informed the public that only sound banks would be licensed and reopened, these actions restored consumer confidence in the American banking system(http://www.newyorkfed.org/research/epr/09v15n1/0907silb.pdf).

On 9 March the Emergency Banking Act of 1933 was passed and signed makingPresident Roosevelt’s banking holiday retroactively legal. It also permits the Office of the Comptroller of the Currency (OCC) to appoint a conservator with powers of receivership over all national banks threatened with suspension (http://www.fdic.gov/about/learn/learning/when/1930s.html).

American Economic Policy with Europe—Protectionism

As businesses began failing, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation.

Protectionism, such as the Smoot–Hawley Tariff Act of June 1930 raised U.S. tariffs to historically high levels. The intention was to increase protection of domestic farmers against foreign agricultural imports. Massive expansion in the agricultural production sector outside of Europe during World War I led, to massive agricultural overproduction during the 1920s. This in turn led to declining farm prices during the second half of the decade. Along with other countries enacting protectionist policies that were especially harmful to agriculture causing farmers to default on their loans. This event may have helped cause the bank runs in the West and Midwest leading to the collapse of the banking system. A petition signed by over 1,000 economists was presented to the U.S. government warning that the Smoot-Hawley Tariff Act would bring disastrous economic repercussions; however, this did not stop the act from being signed into law. As a result of Smoot-Hawley governments around the world took various steps into spending less money on foreign goods such as: “imposing tariffs, import quotas, and exchange controls (http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html).”

While politicians were seeking protectionist methods to help American agriculture disaster from the frenzied wheat boom of the Great War years led to what was known as the 'Great Plow-Up.' This massive deep ploughing of the great planes led to the worst man-made ecological disaster in American history. The farming disaster followed on the heels of the stock market crash with a decade-long drought during the 1930swith the worst years being 1934 and 1936.

Stock Market Crash of 1929

Despite the Depression of 1920–2, when there was an extremely sharp deflationary recession shortly after WWI lasting from January 1920 to July 1921.The economy remained robust growing rapidly for most of the Roaring Twenties. The decade following World War I, known, as the “The Roaring Twenties” was a time of unprecedented prosperity.A technological golden age as innovations such as radio, automobiles, aviation, telephone and the power grid were deployed and adopted with most people living in urban areas in homes lit by electricity.Companies that had pioneered these advances, like Radio Corporation of America (RCA) and General Motors, saw their stocks soar. Financial corporations also did well as Wall Street bankers floated mutual fund companies (then known as investment trusts) like the Goldman Sachs Trading Corporation. Investors were infatuated with the returns available in the stock market especially with the use of leverage through margin debt (see consumer capitalismhttp://faculty.weber.edu/kmackay/history_2710Jazz.htm).

On August 24, 1921, the Dow Jones Industrial Average stood at a value of 63.9. By September 3, 1929, it had risen more than six fold, touching 381.2. It would not regain this level for another twenty-five years (1954). By the summer of 1929, it was clear that the economy was contracting and the stock market went through a series of unsettling price declines. These declines fed investor anxiety and events soon came to a head on October 24 (known as Black Thursday) and October 28 (known as Black Monday) and October 29 (known as Black Tuesday).

While not the sole cause of the Great Depression, the stock market crash on Black Tuesday, October 29, 1929, was one of the major contributing sources that led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40 billion dollars. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not enough.Three years after 1929, on 8 July 1932, the Dow reached its lowest level of the 20th century and did not return to pre-1929 levels until 23 November 1954.

Black Thursday

Depression

New Deal

18 October1929- prices began to fall.Panic Struck on 24 October known as 'Black Thursday.'To stem the tide Many banks and investment companies bought up great blocks of stocks to stop the panic but their attempt failed

Black Monday

28 October 1929 the Dow Jones Industrial Average fell another 12.8 % or 38 points to 260.The sell-off overwhelmed the ticker tape system, telephone lines and telegraphs that normally gave investors the current prices of their shares. The information vacuum led to more fear and panic. The double edge sword of the new technology much celebrated by investors previously, now worked against them causing panic.

Great Depression Causes

Black Tuesday

29 October 1929 another 10.2% or 16 million shares of stock were sold on Wall Street, with a loss of billions.Black Tuesday was a day of chaos. Forced to liquidate their stocks because of margin calls, overextended investors flooded the exchange with sell orders. The Dow fell another 30 points to close at 230.Across the two days, the Dow Jones Industrial Average fell 23%.

By the end of the weekend of 11 November, the index stood at 228, a cumulative drop of 40 percent from the September high. The markets rallied in succeeding months until July of 1932, but it was a false recovery that led investors into further losses. The Dow Jones Industrial Average lost 89% of its value when it finally bottomed out on 8 July 1932. Because of the crash and other economic catastrophes the Great Depression beset the US and world.It was the worst economic crisis of modern times. (http://en.wikipedia.org/wiki/Stock_market_crash).

Reduction in Purchasing Across the Board

With the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. More and more inventory began to accumulate. The unemployment rate rose above 25%, which meant of course, even less spending to help alleviate the economic situation. With inventories accumulating—excess of supplies, prices on goods plummeted leading to deflation.

Conclusions:

The Great Depression (1929-39) wasthe deepest and longest-lasting economic downturn in the history of the Westernindustrialized world. In the United States, signs of what would become the Great Depression were being felt long before the stock market crash of 1929. In agriculture deflating agricultural prices and farm foreclosures gave ill warning of things to come. As farms closed in the West and Midwest so to did the banks in that region of the country began to fail. However, most people think of the Great Depression beginning soonafter the stock market crash of October 1929, which sent Wall Street into apanic and wiped out millions of investors. Over the next several years,consumer spending and investment dropped, causing steep declines in industrialoutput and rising levels of unemployment as failing companies were forced to layoff workers. Adding to the misery was the drought of 1930. This drought would become known as the Dust Bowl with the effects of black blizzards being felt as far away as New York City and Washington D.C. By 1933, when the Great Depression reached its nadir, some 13 to 15 millionAmericans were unemployed and nearly half of the country's banks had failed. Though the relief and reform measures put into place by President Franklin D.Roosevelt administration helped lessen some of the worst effects of the Great Depression in the 1930s,the economy would not begin to truly recover until after 1939, when World War IIbegan moving American industry into high gear.


Answer these questions:

  • What was the Great Depression?
  • List fivecauses to the Great Depression.
  • What did President Franklin D. Roosevelt declare to help stop bank foreclosures and restore consumer confidence?
  • How did protectionism in the way of the Smoot-Hawley Tariff lead to hurting American farmers and businesses rather than helping them?
  • Explain Black Thursday, Monday and Tuesday.
  • What year was the all-time low for the Dow Jones Industrial Average in the 20th century?
  • What happened to the prices of goods because of the reduction of purchasing?

On October 29th 1929, the US Stock Market crashed and before anyone could take effective action, the country had reached its melting point. The US was heading into what would eventually become known as the Great Depression. A several successive event across the globe set off a chain reaction, impacting numerous countries around the world, as well as America.

The authorities didn’t know what to do in the face of such a catastrophe of this scale. Many subsequent years were spent dealing with the fallout from this chaotic fiasco, with millions suffering due to its far-reaching effects. With that being said, it was also the longest & most widespread economic decline of the entire 20th century and truly showed the extent and speed to which an economy could decline.

1. The Roaring 20’s

Ssush17: Great Depressionus History

Before the world entered into an economic decline, the performance of the stock market was well above par, and the industrial output more profitable than it had ever been. This situation was quite evident during the 1920’s – was also known as “The Roaring 20’s” – in the US. At this time the US was overdependent on its production industries, including automobiles and ship building docks.

Income inequality was increasing, and during this decade more than 60% of the population were living below the poverty line. Just 5% of the wealthiest classes received 33% of the nation’s income. This false sense of prosperity led to flooding of products in the markets that weren’t affordable to the masses, setting off a chain reaction that started with the closing of factories and sudden withdrawal of investments. The middle class tried to save its money by reducing spending. When spending was reduced, even more goods on the market went unsold. With profits falling, work forces had to be cut, increasing poverty and fueling a negative economic cycle.

2. Ensuing Global Crisis

Europe hadn’t exactly come to terms to the effects of World War I. There were horrible consequences of the Great War; the surviving population had lost their jobs and there was no way the Government could provide unlimited catalysts for reconstruction.

The US was the prime exporter at the time and was supplying Europe with almost all commodities, basic and advanced. The European Governments that had taken loans from American banks couldn’t pay them back and one after the other started defaulting on them. The American banks had no option but to stop giving out loans. This brought Europe’s purchasing power even further down, setting the scene for the Great Depression.

3. The Stock Market Crash

The Roaring Twenties gave almost all US bankers and investors a false sense of pride, especially those dealing in stocks. The price of stocks had begun to decline since September and on October 18th they were in free-fall. Panic set in and almost all investors wanted real money in their hands. On October 24th over 12 million shares were traded! The panic was mounted and investment companies rushed in to stabilize the situation. However, it was too late. On the coming Monday, the market was in complete free-fall.

The stock prices had collapsed. Successful recovery after October 29th forced the stock prices up but it was too late. Investors had lost confidence in the stock exchange and globally prices were dropping. The US was now slumping into economic collapse and by 1932 the stocks were worth only 20 percent of their 1929 value! By 1933 the domino effect forced the banking system to fail. On top of this, people were migrating from farms to cities in search of jobs. All this was too hard on the economic structure in place and now, more than 15 million people were unemployed.

4. The Dust Bowl

Ssush17: Great Depression Us History Lesson

Severe drought hit the US and Canadian prairies during the 1930’s, which also fueled the Great Depression. US agricultural output was heavily affected by this drought and failure to apply dry-land farming methods forced the US market to look for other sources. At the same time, the farmers in the effected region had no idea what to make of their predicament. The situation worsened to such a level that that majority of the population of the Great Plains couldn’t pay their taxes.

These taxes, even though they made up only a nominal part of the Government’s Revenue, accounted for too much when the drought hit in three successive waves. The nickname “Dust Bowl” has been given to the damaged ecology and landscape.

5. The Smoot-Hawley Tariff Act

Dust Bowl

The situation was only getting worse, and the Smoot-Hawley Tariff Act didn’t help. Introduced on March 13th, 1930 initially with the intention of protecting American companies, the maneuver quickly backfired on the US itself. When it was obvious that a steep economic decline was coming, the US government hurriedly started introducing measures that could slow down its arrival.

One such measure was this Smoot-Hawley Tariff which put on a special tax over 20,000 types of imported goods. This was done so that American companies wouldn’t lose to competition to foreign companies but the nature of the tax was such that it forced several companies to stop exporting goods to the US. This move came in the form of a double edge sword as it reduced production & revenue of all such companies. Workforce had to be laid off, fueling the economic crisis in their parent country.

Food for thought: US imports decreased 66% from 4.4 Billion (1929) to 1.5 Billion (1933)

Ssush17: Great Depression Us History Timeline

There are whole books, theories and papers on the subject as to why the world plunged into Great Depression. All we can hope for is better economic structures and mechanism to catch such situations before the water’s over the bridge!