Causes Of The Great Depression
The Great Depression was the worst economic depression in history of the United States. However, many people in this day and age do not know what caused it. The fact of the matter is that there were many causes of the Great Depression, which were both domestic and international in nation.Causes Of The Great Depression:
The stock market crash of 1929 — Many people believe that the stock market crash on October 29, 1929 is the same as the Great Depression. However, the crash was one of the major causes of the Depression, and 2 months after the crash, it is estimated that stockholders lost more than $40 billion dollars. Although the market regained some of its losses by the end of 1930, the gain was not sufficient to prevent the economic downturn.
Bank failures — In 1930, more than 9,000 banks failed and closed shops. All bank deposits during that time were uninsured and people ended up losing their entire life’s savings. The banks that survived closure and failure stopped giving credit and as a result business started failing, and people also had less money to spend.
The Federal Reserve Governor at the time, Benjamin Strong, administered what he called “a little coup de whiskey to the stock market.” He sold the dollar, purchased hefty amounts of Treasuries, and extended cheap credit to the masses.
Unfortunately this “little coup de whiskey” produced a drunkenly distorted economy. And when the bills came due the banks could not recover their loans. And depositors lost their savings forever.
The two main causes for the great depression was the vast unequal distribution of wealth during the 1920’s as well as extensive stock market speculation that started to take prominence the the later 1920’s. Imbalance in wealth creates a largely unstable economy, and this resulted in several parts of the world. During the 1920’s because it was the biggest boom the United States economy had ever seen, the stock market, despite speculation, remained artificially high. Once the legs fell out from underneith the stock market, the unstable economy (created from the maldistribution of wealth) made the entire economy of America to collapse.
Decade of strong performance after the first World War, the stock market was euphoric and rose to unprecedented heights. When the economy got overheated and speculation ran rampant, a crash was unavoidable. Under such circumstances the best government could do was to do nothing that might make a bad thing worse. But President Hoover had other ideas, together with Federal Reserve policy board head Miller he decided to clamp down the share prices and bring the market down by keeping away banks to extending loans that would be used buy stocks.
Unemployment during the great depression though very high is no indicator of what will happen in our day. We have to remember agriculture was a larger employer then than it is today. Many families lived on farms and employed others to work on them as well. People still will need food in any type of recession or depression we face as a nation. How well you eat however, may well be a concern. Weather we get our food domestically or by import it is of no concern. The big concern will be how much will the government interfere in the free market, and how fast will the Federal Reserve contract the money supply.
