Causes Of The Great Depression
The Great Depression is an economic crisis worldwide large-scale marking the end of the Nineteenth century . The term Great Depression is after the 1929 crisis ambiguous, since it refers to the first crisis to as Long Depression . However, the term is misleading: it was more of an economic downturn or economic stagnation , and not a depression : the GNP continued to grow over the period. Spanning 23 years, it starts with a brutal episode, the banking crisis of May 1873 .
The Great Depression is considered one of the biggest economic crises of the twentieth century. It began Thursday, October 24, 1929 with the Wall Street crash that plunged the U.S. and global economy in turmoil. The 20s, in North America were dubbed the “Roaring Twenties”. In 1928, indeed the United States are growing indefinitely (920 million shares traded). Soon industrial overproduction, market speculation, debt general, the unlimited confidence of Americans and the continuing crisis in agriculture plunged the country into chaos.
There was a cyclical downturn and a few large investors sold their shares. This had a snowball effect, there were thousands of sales waterfalls and panic took hold of all Americans (the day of 24 October where more 16 million shares were sold at low prices without finding buyers). The “call loans” are also the cause of this crisis. They are to purchase one share at a low price, the difference with the real price is covered by a broker as a loan to the bank. Small investors can not repay these loans, this causes the bankruptcy of some banks. Depositors of these banks panic and entail further bankruptcies of institutions less vulnerable (4300 between 1929 and 1931).
Wall Street collapses again on 28 and 29 October. Of the month, its decline reached 30% in November and the U.S. stock market lost another 50%, and most U.S. banks are closing. this crisis quickly spread to the stock market and financial system has many consequences: the credit crunch prevents investment which leads to a recession (falling output) and unemployment. Then there is a decline in international trade and the economy is less open to the outside. The Glass-Steagall Act (often known as the Banking Act), for example, is a measure taken in 1933, to United States. It differentiates the businesses of deposit and investment banking and implements the system of federal deposit insurance. Then, interest rates on bank deposits are controlled by the control Q (also called caps).
The Glass-Steagall Act is named Carter Glass, a Democratic senator from Virginia, former Treasury Secretary and a Democratic Representative from Alabama, Henry B. Steagall, chairman of the Banking and Currency Committee of the House of Representatives. Since the mid-1970s, it is more appropriate to the situation and is finally repealed on 12 November 1999 by the Financial Services Modernization Act (also known as the Gramm-Leach-Bliley Act), just in time to allow the merger of Citigroup constituent. Another financial reform introduced following the 1929 financial crisis is the New Deal (“new deal”). New Deal is the name given by U.S. President Franklin D. Roosevelt (elected in 1932) to its intervention policy in place to get out of the Great Depression in the United States, is a series of measures taken since 1933. This program ran from 1933 and 1938, with the aim of supporting the poorest of the population, reform the financial markets and revive the U.S. economy weakened since the 1929 crash by unemployment and bankruptcies.
The New Deal put in place several measures, for example, a devaluation of the dollar (-59%, to improve terms of trade), a bank deposit guarantee (to save banks that are on the verge of bankruptcy), a moratorium on bank debt (to boost consumption), production quotas agricultural & industrial (to stem the fall in prices), major public works (to lower unemployment) … There are two New Deal. The first, marked by the “Hundred Days of Roosevelt” in 1933, sought to improve the situation in the short term. We find therefore the law of banking reform, social assistance programs of emergency assistance programs through work, or farm programs. The government thus realized significant investment and allowed access to financial resources through various government agencies. The economic results were mixed, but the situation improved.
The “Second New Deal” lasted from 1935 to 1938, highlighting a redistribution of resources and power to a larger scale, with labor protection laws as the Social Security Act (Social Security & the Right to Organise). Assistance programs were also introduced for farming grounds and itinerant workers. However, the Supreme Court ruled unconstitutional a number of reforms. Parts of the programs were then quickly replaced with the exception of the National Recovery Administration.
The second New Deal cost more than the first, and widened the deficit. Moreover, despite programs like the Public Works Administration, unemployment still affected 11 million Americans in 1938 (24.9% of the workforce was unemployed in 1933, approximately 4 million). Several New Deal programs remain active, including some who have kept their original name: the Federal Deposit Insurance Corporation (FDIC), Federal Housing Administration (FHA) or the Tennessee Valley Authority (TVA), but also the Social Security System, the first experience of the welfare state in the United States and the Securities and Exchange Commission in the field of financial regulation.
The consequences of government interventions appear a little later. In 1940 (with the mobilization of the arms industry and the entry into war in 1941 the EU) unemployment & poverty are beginning to fall … Most other major dévalueront also their currency (the pound sterling in 1931, the franc in 1936), practice a policy of quotas & tariff barriers, will launch major works programs, and build systems of social protection. These policies are primarily intended to protect national economies. Those headed by Germany, Italy & Japan, will lead to armed confrontation between totalitarian states & democracies
The primary causes of the Great Depression was the superabundance of consumer goods and under-abundance of money in the economy.
A combination of reasons both national and international causes of the Great Depression (1929-1940) The consequences of the Great Depression were made to feel throughout the world. This was the major cause of increased extremism in Germany, which eventually led to World War II.
Causes of the Great Depression:
In the 1920s, the U.S. produces all kinds of consumer goods ranging from automobiles to appliances. The people bought most of these products on credit. However, in 1929, these goods have saturated the market and demand began to fall. As a result, bank shares were sold by weight ( selling shares ) and credit became harder to obtain.
Since the population bought less and less, the consumer goods that nobody wanted and nobody could afford, then began to accumulate. Companies producing the goods had no income. This has led companies to lay off thousands of workers throughout the country. Workers were not paid and because they had no unemployment insurance, people started losing their homes and what little money they had them barely enough to buy commodities such as food. Demand for consumer goods and services is then dried, which led to increased unemployment.
The downward spiral continued and, as there was more money, even people who built the property had more work. At that time, there was no government program to help unemployed or bankrupt companies and companies that have survived have somehow continued to operate with minimal staff and in 1933, over 25% of the workforce was unemployed.
In the 1920s, during which there was a boom before the collapse, interest rates set by the Federal Reserve were 1%, this led to an increase in borrowing both from consumers that producers. Unfortunately, all the money in this economy and low interest rates led to inflation. To fight against inflation, the Federal Reserve increased interest rates and made it more difficult the creation of loans, the influx of money into the economy was then reduced.
People began to spend less, investors have meanwhile started to panic and have depressed the stock market. The Americans were saving more and spending less. As a result: lower production, less labor and higher unemployment.
Causes of the great depression