Econ

The Great Depression

The history of the United States economy has its roots in the European colonization of the 16th to 18th century. The independence of the thirteen colonies was established under the frontier, ingenuity and support from France and its allies. Since then, the economy of the United States has gone through a lot, for instance, the birth and evolution of the national debt which has expanded apparently without limits. Also, it is quite fascinating to point out the fact that the America’s economy grew to be the world’s leading economic superpower, in the 20th century, and it assumed the role of the greatest financial capital of the world (Fellows & Mike 39).

However, in the years following the America’s Great Depression, the United States’ trade deficit has continued to escalate, with much of America’s massive debt is now being now controlled by China, and a transfer of power appears to be in progress. Basically, this was a colossal financial deterioration that started in the late 1929 that continued into early 1940s (Rothbard 420).

The Great Depression, and even that’s now known as Black Thursday, was such a catastrophic time, not only in American, but also for most people across the entire world. As matter of fact, it was felt in a great deal of places ranging from North America to South America, and all the way to Europe and Japan. Also, cotton farmers and bankers felt the great impacts the depression. While most economists argue that there were several contributing factors to the Great Depression, it led to the most horrible economic crisis in the history of the economy of America.

Analysis of the causes

There are several causes of the Great Depression that are believed to have been the driving forces behind the worst economic situation in the America’s history. The crash of the United States stock market in 1929 was one of most commonly known primary factors that caused the Great Depression. For instance, the US experienced a tremendous surge in stock prices in 1920, but the Federal Reserve could not defend these prices by future earnings. However, in 1928 the Federal Reserve raised interest rates in order to slow rising stock prices. Nearly 2 months after the original crash in October, stockholders had lost over $40 billion dollars (Silverman 71). Although the stock market began to recover from some of its losses, by the end of the following year, it just was not enough and America truly entered what is called the Great Depression. The crash brought on a manifold of debates that are still active in today’s US economy ((Smith 76).

Failure of banks was another cause of the Great depression. As a matter more than 9,000 banks failed in the 1930s because Bank deposits were uninsured, and thus as banks failed people simply lost their savings. Unfortunately, surviving banks stopped being as willing to create new loans because they were overly concerned about their uncertain future as well as their survival in the grueling economic situation. This aggravated the situation leading to somewhat lesser expenditures. When times got really hard, the U.S. banks stopped lending, and European nations simply defaulted on their unresolved loans.

In essence, the obvious consequence of this was that a lot of banks went bankrupt. Others were even forced out of business when investors panicked and withdrew their money. The closings and panics virtually shut down the country's banking system. Debt deflation, often described as a situation whereby banks lend out more money than they have to lend, also contributed a lot to the failure of most banks. However, this was caused by other events that include debt liquidation and contraction of the money supply as bank loans were being paid.

Reduction in the purchasing across the board was also another prominent factor that spurred the fears of additional economic woes during and after the depression. Actually, reduction in the Americans’ purchasing was mainly triggered by stock market crash, and the refusal of individuals from all classes to purchases items leading to a reduction in the amount of items produced, and so as the workforce. Also, as the people lost their jobs, they were incapable of keeping up with paying for items; especially those bought through installment plans, and therefore their items were repossessed. Reduction in the purchasing power of most people was also stimulated by unemployment rate which rose by about 25 percent (Smith 25).

Additionally, the American economic policy with Europe that lead to the creation of the Smoot-Hawley Tariff in 1930 to help protect American companies that fueled the depression. Actually, this resulted in the increase of the taxes levied on the imports, and thus leading to somewhat less trade between America and foreign countries along with some economic retaliation (Ross 152).

While it is quite evident that most farms were already having hard time before the Great depression because they were producing too much in spite of the prices were too low, farm failures contributed a lot to the emergence of great depression. To make the matters even worse, some farmers burned corn for fuel instead of sell it leading to the emergence of the Midwest, which was popularly known as the Dust Bow by that time. Dry winds picked up loads of topsoil and carried it across the prairies, generating a huge, or rather a suffocating clouds of dirt that buried towns and turned farms into abandoned deserts (Smith 16)

Although drought conditions were not directly linked to the Great Depression, economists believe that the drought that occurred in the Mississippi Valley in the late 1930 was of somewhat greater proportion that adversely curtailed the ability of most people to pay their taxes or other debts. In fact, a good number of them were compelled to sell their farms. As a result, this led to a tremendous increase in poverty among most people. In 1929, half of the families in the United States were still living at or below the poverty line. That made them too poor to buy goods and services and too poor to pay their debts. With no markets for their goods, producers had to lay off tens of thousands of workers, which of course just shaped more poor people (Ross 201)

Why did it last so long?

The depression lasted for so long for a good number of reasons. First, the Franklin D. Roosevelt’s presidential plan of the New Deal in 1933 was mainly to for the prolonged depression. Some of the aspects of the plan, including pro-labor measures and anti-competition measures which discouraged investment further aggravated the US great depression. A recovery package that would allow businesses to escape antitrust prosecution, and also workers to demand somewhat higher salaries was also included in the presidential plan (Bernanke 100).

The failure of the Federal Reserve to act quickly to the banks about to be defaulted also increased the length of the depression as well. As a matter of fact, some Monetarists claim that if the Federal Reserve had increased the amount of money in supply more sufficiently during the crash and recession, then the depression wouldn’t have been in such a horrible state. Basically, bank lending is every so often a long-term in relation between the banks and their customers. Since the banking system collapsed, as mentioned earlier, it also took a long time for banks that survived to developed new relationship with customers that had lost their savings and borrowers. If only the banks were saved by the Federal Reserve, the people would not have developed the economic apprehension and pessimism and lending could have been recovered a lot faster (Berton 51).

Most Americans wonder if they are doomed to repeat our past mistakes that lead us into the worst financial crisis in our history, considering the current sluggish growth of the economy and an unemployment rate that does not seem able to return to an acceptable percentage. There are several opposing opinions as to how it would be best to strengthen our economy and put Americans back to work. For instance, these opinions range from debate over Medicare and student loans, to taxing the wealthiest in the country in order to bring the Americans back into the workforce. Nevertheless, if the policy makers and the government do not find a solution sooner rather than later, then may the country is heading down a road filled with turmoil and trouble that our ancestors already faced (Berton 22).

Works cited

Berton, Pierre. The Great Depression 1929-1939. Toronto: Anchor Canada, 2001. Print.

Bernanke, Ben. Essays on the Great Depression. Princeton, N.J: Princeton University Press, 2000. Internet resource

Ross, Stewart. Causes and Consequences of the Great Depression. Austin, Tex: Raintree Steck-Vaughn, 1998. Print.

Rothbard, Murray N. America's Great Depression. Princeton, N.J: Van Nostrand, 1972. Print.

Smith, Robert W. The Great Depression. Westminster, CA: Teacher Created Resources, 2006. Print.

Silverman, Dan. "What caused the Great Depression?" Hindsight Apr. 2009: 6+. General OneFile. Web. 2 Dec. 2011.

Saint-Etienne, Christian. The Great Depression, 1929-1938: Lessons for the 1980s. Stanford, Calif: Hoover Institution Press, 1984. Print.