Great Depression

America's "Great Depression" began with the dramatic crash of the stock market on Black Thursday, October 24, 1929. The depression had devastating effects on the country. The stock market was in shambles, many banks couldn't continue to operate and farmers fell into bankruptcy. A quarter of the working force, or 13 million people, were unemployed in 1932. The Great Depression lasted over a decade, with hundreds of thousands of Americans losing their jobs, businesses failing, and financial institutions collapsing.

Speculation in the 1920s caused many people to buy stocks with loaned money and they used these stocks as collateral for buying more stocks. Broker's loans went from under $5 million in mid 1928 to $850 million in September of 1929. The stock market boom was very unsteady, because it was based on borrowed money and false optimism. When investors lost confidence, the stock market collapsed, taking them along with it.

Short sighted government economic policies were one of the factors that led to the Great Depression. Politicians believed that business was the key industry of America. As a result, the government took no action against reckless investing. Congress passed high tariffs that protected American industries but hurt farmers and international trade.

The economy became unstable because the National wealth was not spread evenly. Instead, most money was in the hands of a few families who saved or invested rather than spend their money on American goods. As a consequence, supply was greater than demand. Some people profited, but others did not. Prices went up and Americans could not afford anything. Farmers and workers couldn’t profit and the disproportion of prosperity made recovery difficult.

The U.S. stock market boomed in the 1920s. Prices reached levels, measured as a multiple of corporate dividends or corporate earnings that didn’t make sense in terms of established patterns and rules of thumb for assessments. An array of indicators suggests that at the market peak in September 1929 something like forty percent of stock market values were pure air: prices above fundamental values for no reason other than that a large cross-section of investors had the notion that the stock market would go up simply because it had gone up. The U.S. financial system was already past the peak of the business cycle when the stock market crashed in October of 1929. As a result of the Federal Reserve raising interest rates too such a high level it brought on the recession that they had hoped to steer clear of.

When the stock market crashed in 1929 there was an over production of goods at the same time, as well as, a surplus of banks and flooding the economy with a surplus of loans. Added to the mid was a tariff and war-debt policy that curtailed foreign markets for American goods. Finally, coverage of factors affecting the economy then was not as detailed as it is today.

The Great Depression severely hurt the economy . People who had money in the banks lost every penny and because the federal government did not insure loans like the FDIC does today, everyone lost their savings. The Depression was unrelenting in the United States and soon people where living in villages made out of shacks. They were coined Hoovervilles because many believed President Hoover was to blame for their predicament.

Timeline:

1919
The end of World War 1 - Treaty of Versailles.
The treaty demands payments and reparations of war debts from the defeated countries.

1927
Some U.S. Banks fail because of bad investments and low prices for agricultural products.

1928
Herbert Hoover is elected president.

1929
The stock market fails in October, which sends millions of investors into bankruptcy.

1930
Hawley-Smoot Tariff Act raises the import duties on a wide variety of raw materials and industrial products.

1931
Hostilities between China and Japan begin resulting in increased defense spending, and preparations for war to efficiently insulate Japan from an economic depression. Hoover creates the Reconstruction Finance Corporation to lend money to businesses to help prevent failing.

1932
Franklin Delano Roosevelt is elected president.

1933
Adolph Hitler becomes chancellor of Germany and he puts into effect his four year plan of economic recovery.
FDR declares a federal bank holiday, to determine which banks are solvent enough to re-open. FDR broadcasts the first Fireside Chats with America. The 100 days congressional session approves 15 major acts, this initiates the New Deal.
The World Economic Conference is held in London. They fail to agree on international policies to cooperate to combat in the worldwide depression.

1934
Wall Street trading is regulated by the Securities and Exchange Act. The New Deal policies are mandated by the democratic majorities in Congress.

1935
Through the National Labor Relations Act workers get the right to organize and the Social Security Act provides for old-age pensions and unemployment insurances.

1936
Germany's second four year plan focuses on defense and the build up of arms.

1937
FDR begins his second term. The Recession begins. 1937-1938 unemployment raises to 20%. Congress defeats Supreme Court Reform Bill- emphasizing that the Constitution must stay the principle of government.

1939
Germany invades Czechoslovakia, resulting in a defense spending buildup in Great Britain, France and the United States.
This ends the Great Depression of the 1930's.

End notes:Two banks sit kitty-corner from each other in downtown Tucson, AZ on Broadway and Congress. An acquaintance of mine worked there in the '70's as a teller. She tells me that there is a tunnel running underground, beneath the street, between the two banks. After the wild runs on the banks in the during the Great Depression and being short of currencies, the tunnel was used to shuttle monies back and forth between the two banks in an effort to keep people from further runs. They had a small oven in which they kept money warm to prove to worried customers that the money was hot off the press.

Sources:

Causes of the Great Depression:
www.bergen.org/AAST/Projects/depression/causes.html

Great Depression Time line:
http://www.geocities.com/athens/olympus/1545/timeline.htm

Webquest:The Great Depression
http://www.plainfield.k12.in.us/hschool/webq1/webquest.htm

Those bad investments wouldn't have happened in the first place but for one thing.

Sometime in, I believe, 1920 or 1921, the federal government of the United States seized control of the interest rate used for loans. Apparently, some bright boy in Washington figured that, if the government controlled the interest rate, the economy could be kept in a state of perpetual boom.

Anyone ever experiment with positive feedback?

The road to hell is paved in good intentions, and things are only magnified when it's the government.

Things were fine for a few years. The interest rate was kept unnaturally low, and business boomed along, just like they had predicted. But, since money was very cheap to borrow, much cheaper than it should have been, _everyone_ was starting a business. Some weren't too feasible, and wouldn't have ordinarily gotten a loan. But, since rates were so low...

By 1927 Washington realized something was wrong. They started squeezing the money supply, which eventually culminated in Black Thursday.

Then, the government cleverly took a recession and turned it into a Depression, with a capital D.

The economy gets fucked up to the extent the government fucks with it. Simple rule.

The Great Depression lasted from October 24, 1929 until the economic recovery of the 1940s. On October 29, Black Thursday, the stock market crashed heavily, and continued to fall sharply throughout the coming weeks. As a result, the United States and the world were thrown into a decade of poverty and unemployment. The depression affected all sectors of the economy. Farm owners and agricultural workers suffered from falling crop prices. Businesses failed from a lack of investment support and a decline in the ability of the masses to afford their products. Banks closed their doors as the nation's citizens hoarded their money and defaulted on loan payments. Unemployment and abject poverty enveloped the nation.

Herbert Hoover was President of the United States at the onset of the depression. His message to the people was one of continued belief in recovery, even in the face of worsening conditions. Though he eventually sparked some government action in an effort to curb the effects of the depression, he believed in the power of the economy to right itself without government intervention. The situation did not improve, and dissent grew throughout the nation. Hoover lost the presidency to Franklin Roosevelt in the 1932 election.

FDR quickly shifted from a stance of non-intervention to a government policy of regulation and relief. During the first hundred days of his presidency, he and his highly trusted advisors, known as the Brain Trust, created the New Deal. Marshalling a previously unseen executive power, Roosevelt created a number of agencies to aid agriculture, business, and the unemployed. The nation mobilized, and it appeared the economy might improve. However, the economy remained troubled, and criticism of the New Deal rose up in the government and in some political circles. A number of Supreme Court Rulings effectively dismantled the primary mechanisms of FDR's plan.

Undaunted, and gaining a public mandate with the Democratic successes in the 1934 midterm election, FDR set forth the Second New Deal in 1935. This program reaffirmed the administration's commitment to public support of the nation's troubled people. Great steps were taken in attempts to solve the unemployment problem and stimulate economic recovery. The legislation passed during this period would be the framework of the New Deal throughout the remainder of the decade. The economy showed some signs of recovery but was set back by the 1937 recession. After that, FDR enacted few additional measures to cope with the depression. Finally, economic recovery took place under the war economy of the early 1940s, with levels of poverty and unemployment returned to pre-depression levels.

The Depression brought marked changes to the political and entertainment culture of the United States. A culture of dissent and disillusionment produced ample political outlets, such as Huey Long's Share Our Wealth program. Dissent and disillusionment sparked by the depression affected popular culture as well. The 1930s were the golden age of radio. Radio shows, most of them comedies and soap operas, took people's minds off their troubles and provided happiness in a time of great sadness. Hollywood also flourished, as people flocked to the theatres to escape their everyday world of poverty and despair. In contrast, intellectuals and authors delivered a sharp dose of realism. Many were directly critical of capitalism and supported political alternatives, such as socialism or communism.

The Great Depression was a time of sadness and poverty for many, and became an abiding historical watermark in American history and consciousness. It produced a distinct political response that defined the Democratic Party throughout the twentieth century; some New Deal policies, such as Social Security, are now considered bedrock rights of American citizens. Under FDR, a new conception of the federal government emerged, based on the belief in economic regulation and social welfare.