Introduction
The Great Depression is said by economists to be the worst economic downturn to ever occur in the Western World. It started in 1929 and lasted for 10 straight years. The economic depression was triggered by a stock market crash in the October of 1929. The stock market crash sent shockwaves through Wall Street resulting in investors losing millions of dollars. After the stock market crash, investment and consumer spending naturally dropped in the following months and years. This had a negative effect on manufacturing and employment resulting in millions of Americans being laid off. At its lowest point, the economic depression had forced approximately 15 million to lose their jobs. Moreover, nearly 50 percent of the America’s banks collapsed during the Great Depression. This paper discusses the great depression, its causes, the negative effects it had, and the recovery.
What caused the Great Depression?
From the turn of the 20th Century, the US economy was one of the fastest growing in the world. The peak of this growth was in the 1920s. From 1020 to 1929, the economy grew by more than 100 percent. This period of spectacular growth was referred to as the “roaring twenties” by many analysts (Kyvig and Kyvig).The New York Stock Exchange embodied most of this growth and the wealth that came from it. It here that Americans from all walks of life speculated on the future of the many companies that seemingly had a bright future. Many people bought as many stocks as they could with their savings. This really pushed the turnover of the New York Stock Market to its highest level in the August of 1929.
By the mid-1929 the manufacturing sector was already slowing down and unemployment was rising. This turn of the country’s economic fortunes, left stock prices at prices several times their real values. Moreover, because of rapidly declining food prices and drought, the agricultural...
Consumer debt was also high and the wages were extremely low. What’s worse, most banks had given out plenty of money and could not recover the same (Watkins; Kyvig and Kyvig). These factors triggered a mild recession that started from the summer of 1929. This, in turn, reduced consumer spending resulting in a pile up of unsold goods. As expected, this led to a decline in manufacturing. However, despite these changes, the stock prices were still on an upward trend and by the fall of the same year they had reached absurd, unjustifiable levels that did not match the approximated future earnings.
The Stock Market Crash of 1929
By the 24th of October 1929, many investors had panicked and were selling their shares fearing that a stock market crash was imminent. On that day about 13 million stocks were traded. The day was dubbed the “Black Thursday” (Romer, 11). Less than a week later on October the 29th about 16 million stocks were traded. This day was dubbed the “Black Tuesday.” This panic trading rendered many stocks worthless resulting in some investors being wiped out completely.
The stock market crash completely eroded consumer confidence resulting in even less spending and investment. Industries had to slow down production and some even fired workers to save costs. Americans from all over the country could not adequately take care of their needs on their salaries. This resulted in many buying things in credit. Non-repayment of loans and mortgages led to repossessions and foreclosures. The fact that America was participating in the gold standard led them to caused the depression to spread to other countries around the globe that were also participating in the fixed currency exchange (Eichengreen and Temin, 183-207).
Bank runs and the governing administration
The administration in charge of the American Government was the Herbert…
