The Great Depression, major economic havoc, was the worst financial downturn in the history of industrialized that has been felt throughout the world. The nature of the crisis of the Great Depression, indeed, was plunged by a series of events and happenings which, in turn, led to the stock market crash that lasted from 1929 to 1939.
How does the Great Depression Happen?
After the stock market crash of October 1929, the Great Depression occurs by causing anxiety and shock to millions of investors. As a result, consumers spending and investment dropped significantly; for, industrial output and employment were not able to circumvent the prevalent situation.
Similarly, industries and companies have too laid-off workers due to a sharp decline in investment and business activities.
Around 15 million Americans became unemployed and half of the country's banks have failed when the Great Depression reached its lowest point by the end of 1933.
Prior to the Great Depression, the U.S. economy was rapidly growing, as the nation's total wealth more than doubled between 1920 and 1929. "The Roaring Twenties", a period of rapid expansion, was centered at the New York Stock Exchange on Wall Street in New York City that exhibits unexpected speculation.
From millionaire tycoons to cooks and janitors splashed their savings into the stock market, thereby, causing it to reach its peak in August 1929. Accordingly, the production line along with, rising unemployment was observed throughout the entire period.
In the same vein, a significant rise in the stock prices, accompanied by lowering wages, soaring in consumer debts, struggling agriculture sector due to drought, and exceeding loans in banks, which could not be liquidated, all were severe drawbacks of the perpetuated Great Depression.
Stock Market Crash of 1929:
As anxious investors started selling overpriced shares on October 24, 1929, the unanticipated stock market crashed. On" Black Thursday", a day of main shares trading, showed trading of a record of 12.9 million shares. Five days later, after another wave of shock, some 16 million shares were traded on October 29, which is known as "Black Tuesday".
As a result, millions of shares were ended up valueless and insignificant. The period also witnessed a substantial downturn in spending and investment and the firing of workers from factories.
The global observance of the gold standard, a system that works on a fixed currency system around the world, led to economic miseries to spread from the United States to the rest of the world, especially Europe.
The pervasiveness of the Crisis in the Hoover administration:
The incumbent President Herbert did not dissipate the severity of the crisis, despite his assurances. As 4 million workers were not able to find work by 1930; and, the number had risen sharply to 6 million by 1931.
Meanwhile, industrial production had plummeted, countless people became homeless, farmers were not able to harvest their crops, and ended up abandoning their fields while starving themselves. The" Dust Bowl", a terrible drought in the Southern Plains causes high winds and dust from Texas to Nebraska that killed people, livestock, and crops and finally caused a mass migration of people from farmland to cities in quest for work.
Subsequently, the first of four waves of banking panics started in the fall of 1930 led numerous investors to lost confidence due to the solvency of the banks. As the number of investors demanded their deposits in cash by urging banks to liquidate loans to supplement their inadequate cash reserves on hand.
Hoover's administration in the prevalence of this disastrous situation strived to finance failing banks and other institutions with government aid. The notion behind aid was that the banks would loan to businesses, which, in turn, will hire back their employees.
Roosevelt, elected to the presidential election:
Democrat, Franklin D. Roosevelt's victory in the presidential election in 1932 has paved the way to new avenues of stability for the country already grappling with a myriad of challenges. On his very inauguration day, all remaining were instructed to remain close at the end of the fourth wave of banking panics, as the U.S. Treasury didn't have enough funds to pay to all government workers.
Contrary to this, Franklin appeared with calm and positive energy as he famously said "the only thing we have to fear is fear itself". Roosevelt took proactive steps to address the country's economic vulnerability by declaring a four-day" bank holiday" firstly.
The aim behind this move was to pass reform legislation for the sound reopening of these banks. He also started communicating with people directly through radio in a series of talks, as it further was quite helpful in restoring the lost confidence of the public.
The First 100 days of Roosevelt in office were very crucial; for, his administration passed legislation that led to stabilizing industrial and agricultural production, along with the creation of jobs in economic recovery.
To prevent such mishappening in the future, Roosevelt introduced reforms in the financial system by establishing the Federal Deposit Insurance Corporation (FDIC) to secure depositors' accounts and the Securities and Exchange Commission in a bid to regulate the stock market.
The New Deal:
Tennessee Valley Authority (TVA), one of the major programs of the New Deal that helped the country to rescue from the effects of the Great Depression, had built dams and hydroelectric projects, which proved effective to control floods and electricity generation to the improvised inhabitants of Tennessee Valley.
In the same vein, the Works Progress Administration (WPA), a major employment program, employed about 8.5 million people from 1935 to 1943.
Before the Great Depression hit the United States, it was the only industrialized country in the world with no unemployment insurance and social security. For the first time, Congress passed the Social Security Act in 1935 that provided unemployment, disability, and pensions for old-age Americans.
Subsequently, at the beginning of spring in 1933, the economic revival began to manifest itself that continued to revive for the next three years. In the following years, real GDP (adjusted for inflation) rose at an average rate of 9 percent per year.
In 1937, the Federal Reserve's decision to enhance its requirement for money in reserve caused a sharp recession in the economy. The earlier revival signs of economic recovery began to dissuade in 1938 when the second severe constriction revert many of the gains incurred in production and employment.
As a result, it enhances the period of the Great Depression that spanned for a decade.
In the meantime, there was a significant rise of extremist political movements in certain European countries due to depression-era sufferings. Among them, most prominent was Adolf Hitler, the Nazi regime in Germany was fierce and proactive, and led to war in Europe in 1939. To strengthen and fortify its position, the WPA enhances its military infrastructure in the United States, though the country remains indifferent.
Beginning of World War II:
To fight against Germany and other Axis powers, Roosevelt determined to support Britain and France. Therefore, defense industries started manufacturing and producing arms and ammunition by employing more and more workers. In December 1941, Japan's attack on Pearl Harbor caused America to enter into World War II, thereby further accelerating the nation's factories' production capacity.
In early 1942, the increasing industrial production, as well as prevalent conscription, led to a substantial reduction in the unemployment rate. The Great Depression, eventually, ended and the United States started its full participation and attention to the global conflict of World War II.
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