When was the Great Depression? What caused it?

2,305 Views Updated: 16 Aug 2017
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When was the Great Depression? What caused it?

October 24, 1929, witnessed panicked government leaders who passed the Smoot-Hawley tariff to protect their domestic industries and jobs. This resulted in a 25 percent fall in the total number of units.

Though the U.S. economy felt the pains of the Great Depression six months before other economies, its actual impact was felt in October 1929 when the stock market prices collapsed in the New York Stock Exchange. Besides tarnishing thousands of individual investors, the Great Depression affected a lot many banks and other financial institutions as well. 

#1. What Was the Great Depression?

The Great Depression that kicked off on October 24, 1929, lasted for 10 years. The ‘Black Thursday’ was a worldwide economic depression when traders sold 12.9 million shares of stock in a single day. This amount was three times of the usual amounts. The next four days followed a fall of 23% of stock prices. This was referred to as the stock market crash of 1929.

The Depression reached its peak in 1933, resulting in a rise in unemployment from 3 percent to 25 percent of the entire nation’s workforce. Wages of the employed staff fell by 42 percent. The Gross domestic product fell from $103 billion to $55 billion, almost half of what it used to be. Deflation was said to be the reason behind the GDP fall.

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#2. Causes of the Great Depression

As per the former chairman of the Federal Reserve, Ben Bernanke, the central bank helped in bringing in the Depression. The bank implied strict monetary policies in times when it should have done the opposite. He highlighted the five major mistakes committed by the bank.

• The bank began raising the fed funds rate in 1928 and kept increasing it over a recession that hit in August 1929. That's what caused the stock market crash in October 1929.

• Investors switched to currency markets when the stock market crashed. At the same time, the gold standard sustained the value of the dollars held by the U.S. government. The investors started trading in September 1931.

• They raised the interest rates once again to protect the dollar's value. This led to restricted sources of money, leading to more bankruptcies.

• They did not raise the supply of money to fight against deflation.

• Most investors withdrew all their deposits from banks due to their inadequate functioning. Their failure created panic amongst the people. Unavailability of cash in banks further decreased the money supply.

• The banks did not have enough money in circulation, and hence they permitted a fall of 30 percent in the total supply of U.S. dollars.

(Image Courtesy: US-History)

#3. What Ended the Great Depression of 1929?

In 1932, the country elected Franklin D. Roosevelt as the new president in 1932. Under his rule, within 100 days, he signed the New Deal into law which created 42 new agencies. These organizations focused on providing new job opportunities, allow unionisation and provide unemployment insurance.

Many programs including the Social Security, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation still exist. These programs aid in safeguarding the economy and reduce the risk of another depression.

Some claim that it wasn’t the New Deal but the World War II that put an end to the Great Depression. They suggest that it was the financial stress caused by the Great Depression that made them elect Adolf Hitler's Nazi party in 1933 with a majority. World War 11 would have never happened if FDR had spent enough on the New Deal.

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#4. Can a Great Depression Hit Us Again?

After the massive blow, the U.S. Federal Reserve had learned their lesson and had been working on avoiding such a situation ever again. If a depression does take place, it is said that the scale won’t be the same. They are now aware of the functioning of the monetary policies of the nation. But the monetary policies cannot counter balance the fiscal policies. What can trigger the economic crisis is the volume of U.S is the national debt and their current account deficit. Since the current U.S. debt level is unmatched, nothing can be said as if now.

(Image Courtesy: NPR)

Do you have any other related to the Great Depression? Let us know in the comment section below.

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