Why Economies Succeed Or Fail Paper "1.5 page double spaced"

Zhaowei Gu

Econ 126

The Great Depression

The great depression was in the 1930s and is also referred to as the most profound crisis

by the contemporary USA economy. It is also referred to as the great crash. The worldwide

economic downturn began in 1929 and lasted about ten years. It was the most prolonged severe

depression that has ever been experienced in the Western world. The great recession was a

significant fall in the economy of North America and other industrialized areas that took place in

1929. (Modern American Poetry, 2015, About the great depression). Besides having gone

through some economic depression six months earlier, the great depression in the US was said to

begin in New York with the collapse of the stock exchange. The great depression was caused by

the weak an imbalanced economy in the US. Indeed, the decline of the banking sector in the

USA was the primary cause of experiencing the crash in the state. During the depression, 30% of

all the banking sectors in the USA failed ​(Temin, 2010)​. The paper will analyze the indication of

the various sources of bank distress in the country that led to the occurrence of the economic

disaster.

Causes of the Great Depression

Comment: which one cause you think is the primary cause of the great depression?

Sources, results, and likelihoods of avoiding banking worrying during the great

depression have significantly been argued over a few decades. The debate still holds factual

ground according to the data published by The Federal Reserve Bulletin. According to Kerzner

and Strahan, the major banking crisis was brought about by the contracting of the economy. The

loaning limits increased over 37%; the value of the assets reduced. According to these experts,

they saw the deteriorating essentials forcing banks into insolvency, and a liquidation process

kicked in at around 1925.

Additionally, they reviewed that the contagion fear, a heightened cash holding, and

withdrawal by the masses caused a significant drain on the bank deposits. It further pushed the

financial market in a trailing route of collapse ​(Richardson, 2007)​. This led to the further fueling

of the crash.

According to Krugman, the significant ways of avoiding banking issues could have done

by the Federal Reserve, inputting a little aid in the banks. The expert suggests that fundamental

forces, monetary interventions, and liquidity assistance could not have improved the banking

situation facing the state. However, open-market-expansion or even a broad gauge could have

indirectly alleviated the banking condition in the country. The federal reserve could have acted

as a render last option and extending loans to illiquid financial based institutions such as the

small commercial banks. However, this previous resort federal reserve ignored their role of

aiding the small institutions; they went a step further to raise the rates of interest, dropping the

fiscal price, and hindering discount lending. This led to an overall panic in the banking

institutions and more also fueled the pace of economic deterioration in the US.

Recovery from the Great Depression

Currency devaluation was the major regaining points from the significant depression.

This was reducing the rate of inflation that had accumulated throughout the country. This implies

that the citizens used to spend vast amounts of money on buying goods and services. Taking an

example, buying a loaf of bread required the spending of a lot. This was mainly due to the

reduced purchasing power of the currency. Additionally, this was caused by the excessive

current flow in the economy. Banks took a toe in reducing this by regulation the amount of

money in the economy ​(Fava, Ruini & Belaise, 2006)​. This was the major crash recovery route

taken.

Comment: the topic did not ask you what is its effects. Also, what is the difference

between the great depression and 2008 recession

In summary, the crush in the banking system in the US-led to diverse effects in its

economy. However, there was the implementation of strategies the led to regrowth of its

economy, such as the reduction of the amount of inflation.

References

Fava, G., Ruini, C., & Belaise, C. (2006). The concept of recovery in major

depression. ​Psychological Medicine​, ​37​(03), 307. doi: 10.1017/s0033291706008981

Richardson, G. (2007). The Collapse of the United States Banking System during the Great

Depression, 1929 to 1933. New Archival Evidence. ​Australasian Accounting, Business

And Finance Journal​, ​1​(1), 39-50. doi: 10.14453/aabfj.v1i1.4

Temin, P. (2010). The Great Recession & the Great Depression. ​Daedalus​, ​139​(4), 115-124. doi:

10.1162/daed_a_00048