The Great Depression (1929-1945): The Great Depression of 1929 was a worldwide depression which lasted for ten years. The most important event in the U.S. economy was “Black Thursday," October 24, 1929 when 12.9 million shares of stock were sold in one day. It was triple the usual amount that was spent. Over the next four days, stock prices fell 23% which resulted the stock market crash of 1929.
The height of the Depression was 1933. By then, unemployment had risen from 3% to 25% of the nation’s workforce. Wages for those who still had jobs fell 42%. Economic output was cut in half, from $103 to $55 billion. That was partly because of deflation Prices fell 10% per year. Panicked government leaders passed the Smoot-Hawley tariff to protect domestic industries and jobs. As a result, world trade fell 65% as measured in dollars and 25% in the total number of units.
Because of depression many farmers lost their farms. In the same time, years of erosion and a drought created the “Dust Bowl” in the Midwest, where no crops could grow. Thousands of these farmers and other unemployed workers looked for work in California. Many ended up living as homeless “hobos” or in shantytowns called “Hoverville’s" named after then-President Herbert Hoover.
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Depression is different from a recession.
According to Ben Bemanke, the past Chairman of Federal Reserve, the central bank helped create the Depression. It wrongly used monetary policies. Bernanke highlighted several key Fed mistakes:
Thanks to the Fed, there was just not enough money in circulation to get the economy going again. Instead of pumping money into the economy, and increasing the money supply, the Fed allowed the money supply to fall 30%.
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Great Depression was one of the major economic events in world history. It affected every sphere of life. The outcomes were such that they changed the face of world economy. This article deals in detail with the economic, political, social and cultural effects of this crisis and the process of restoration
As it was a major economic phenomenon it had serious and widespread economic effects.
The Depression had profound political effects. In countries such as Germany and Japan, reaction to the Depression brought about the rise to power of militarist governments who adopted the aggressive foreign policies that led to the Second World War. In Germany, weak economic conditions led to the rise to power of Adolf Hitler. Germany suffered greatly because of the huge debt the country was burdened by following World War I.
The Japanese invaded China and developed mines and industries in Manchuria. Japan thought that this economic growth would relieve the Depression.
In countries such as the United States and Britain, the government intervened which ultimately resulted in the creation of welfare systems. Franklin D. Roosevelt became the United States President in 1933.
He promised a "New Deal" under which the government would intervene to reduce unemployment by work-creation schemes such as painting of the post offices and street cleaning. Both agriculture and industry were supported by policies to limit output and increase prices.
This economic catastrophe hit the humans in the worst way possible. They were surrounded by miseries from all sides.
The Great Depression ended as nations augmented their production of war materials at the beginning of World War II. This increased production provided jobs and put considerable amounts of money back into circulation. In an attempt to revive the economy, governments all over the world actively participated in the regulation process especially of the financial markets. United States constituted the Social Security Act (1935) as a response to the hardships of 1930s. It included unemployment compensation and old age and survivors' insurance scheme. With this, several other acts like the Security Exchange Act of 1933, the Glass-Steagall Act, Emergency Relief and Construction Act, etc., were introduced as corrective measures.
In Germany, Hitler developed a massive work-creation scheme that had largely removed unemployment by 1936. Rearmament, paid for by government borrowing, started in a major way. In order to control inflation, consumption was restricted by rationing and trade controls. By 1939 the Germans' Gross National Product was 51% higher than in 1929 which were mainly due to the manufacture of machinery and armaments.
In 1932, Franklin D. Roosevelt was elected President.
He promised to create federal government programs to end the Great Depression. Within 100 days, the New Deal was signed into law. It created 42 new agencies designed to create jobs, allow unionization, and provide unemployment insurance. Many of these programs, such as Social Security, the Securities and Exchange Commission (SEC), and the Federal Deposit Insurance Corporation (FDIC) are still here today.
They help safeguard the economy and prevent another depression
Many argue that World War II, not the New Deal, ended the Depression. However, if FDR had spent as much on the New Deal as he did during the War, it would have ended the Depression. From 1932, when the New Deal was launched, to 1941, when Japan attacked Pearl Harbor, spending only increased the debt by $3 billion. In 1942, defense spending added $23 billion to the debt, and $64 billion in 1943.
If that much had been spent on the New Deal, it would have been enough to end the Depression. In fact, WWII had its roots in the Depression. Financial stress made people desperate enough to elect Hitler as Chancellor in 1933. If FDR had spent enough on the New Deal to end the Depression before Hitler consolidated his power, World War II might never have happened.
There were some important points in the New Deal and they are as follows:
Certain effects of the New Deal are as follows:
By 1940, there was normal economic activity in the USA.
The New Deal expanded the regulatory power of the federal government and the government’s role in the economy. It focused new attention on the plight of workers, women, racial minorities, children, and other groups.
However, many Keynesian economists believe that it was actually the big government spending during World War II which ended the Great Depression. The military guns, tanks, ships, and planes were mass produced. Unemployment started to decline at the start of World War II.
Though the Allies and the Axis Powers had been at war since 1939, the United States remained neutral until the Japanese attacked Pearl Harbor on December 7, 1941.
World War II ushered in numerous social changes, including more civil liberties and the movement of women into previously male-only jobs.
The country emerged from World War II a very different nation – it solidified America’s role as a global power.
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