Posted: August 30th, 2022

The Great Depression

The Great Depression
The great depression was a period of the economic crisis that began in 1929 and lasted until the early 1940s. It remains the longest and the most severe economic downturn that has been experienced in the world. Although it originated in the United States, the effects of the crisis were felt across the globe ranging from severe unemployment, hunger, and homelessness.
What caused the great depression?
Approximately a third of all the American assets were owned by the wealthiest tycoons who only made up 1% of the total population. This affluent group preferred saving more money than they invested. This hindered economic growth. The middle- and lower-class people accumulated debts by buying automobiles and appliances through the installment purchase plans.
In the early 1920s, the US economy underwent rapid economic growth. A reckless market speculation in the stock market centred at New York saw numerous people, from very rich to the poor, making enormous investments in stocks. The stock market expanded rapidly and reached a peak in 1929. By this time, the decline in production and unemployment was worsening by the day, which left stock prices overvalued. Wages also dropped drastically, and farmers were paralyzed from the decrease in food prices and drought. People fell in debt they could not pay, which resulted in multiple foreclosures and, eventually, the fall of the banking system.
What ensued was a financial panic, and investors began cashing their savings while others opted to sell their overpriced shares. The stock market crash that had been feared eventually happened, rendering millions of shares worthless. All this time, President Herbert Hoover kept assuring his people that all this was a passing crowd, and everything would take back its course. Things, however, continued worsening until 1939 with the appointment of a new government.
The New Deal
Within the first 100 days of his appointment, President Franklin Roosevelt signed the new deal into law. The new deal comprised a series of laws that sought to help the country out of the depression. These laws aimed at regulating the stock market, address unemployment, and stabilizing industrial and agricultural production. All the remaining banks were ordered to close pending a review to reduce the wave of a fourth financial panic. Signs of improvement began in the summer of 1933 and continued for the next three years, with economic growth of 9% per year. The decision by the federal reserve system to increase the reserve requirements greatly contributed to the end of the economic depression. By 1941 when the second world war broke out, the economy, although still below the trend, had significantly improved with unemployment level ranging at approximately 10%.

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