The Great Depression

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the Great Depression was the worst

economic downturn in modern history

people went from parties jazz music and

riches in the roaring 20s to losing

their life savings and standing in

breadlines in the span of a few years

and the depression wasn't just in

America its impact spread across the

world and ultimately led to the start of

World War II but what exactly caused the

depression and what lessons can we learn

from it let's start in 1918 world War I

has just ended and American soldiers are

returning home having won the war ah it

feels good to be back during the war

women had for the first time begun to

enter the workforce and with men

returning now the economy saw a postwar

boom this economic boom alongside a

growing culture change created the era

known as the roaring 20s

hardy at this time in Detroit Michigan a

man named Henry Ford would revolutionize

transportation with the Ford Model T car

facing huge demand for the car his

company introduced the process of the

moving assembly line this mass

production dropped the car's price from

$780 in 1910 to $290 in 1924 making it

the first inexpensive car for the masses

by 1927 the 15 millionth Model T would

roll out of the

factory you get a car you get a car

everyone gets a car many companies would

copy this assembly line process to

mass-produce other inventions including

the radio washing machine and vacuum

with mass production of new products and

improved advertising using the radio the

age of consumerism had officially begun

everyone wanted the latest and greatest

new product to help with the demand

banks began giving out loans more freely

to people so that they could buy these

new products on credit with money they

didn't yet have times were good people

were partying there was jazz music and a

spirit of social liberation good to see

you at the party old

sport prohibition had started in 1920

but meant little to this new generation

the parties were bigger the morals were

looser and Wall Street became the place

to be from 1921 to 1929 the US stock

market increased six-fold driven by the

postwar boom easy credit and all the

demand for new consumer products as the

public learned about these incredible

returns from the stock market everyone

began putting money in and talking about

it more this created a snowball effect

where as the stock market continued to

go up people began to blindly sink all

their savings into stocks and some even

took out loans which further drove

prices up when people believe no price

is too high for a stock that can be a

warning sign that the price is no longer

based on fundamentals and may have been

driven up to irrational

levels although stock prices were

reaching new highs something wasn't

right by the mid 1920s the economy and

demand for products had slowed

drastically with Europe still recovering

from the aftermath of World War I and

few countries being able to afford the

new consumer items global trade was

stalling this didn't matter as people

were still overwhelmingly optimistic and

expected the stock market would continue

to see record yearly performances each

year extreme greed and unrealistic

fantasy filled the air with margin

people could even buy stocks for only 40

to 10% of the actual stock price and

then pay off their loan when the stock

sold for large

profits i would like to take out a loan

sure what for a house a business a farm

to buy stocks fine by me here you go by

1929 40% of US consumer debt was being

used to purchase stocks and in that same

year the US had just elected a new

president Herbert Hoover who famously

said "We in America today are nearer to

the final triumph over poverty than ever

before in the history of any land the

poor house is vanishing from among us."

To many people a skyrocketing stock

market was a sign of a healthy booming

economy but things were about to take a

dark turn catastrophe would hit on

October the 24th 1929 a day that became

known as Black Thursday the stock market

would see heavy liquidation with a

record 12.9 million shares sold and the

entire stock market fell

11% this day marked the beginning of the

Great Depression and the following week

there would be Black Tuesday where the

market fell 12% with a record-breaking

16.4 million shares sold eventually in

the span of 2 weeks stocks had lost

about a third of their value people who

had borrowed money to invest were

crushed and many people lost their life

savings however the worst was yet to

come the common belief is that the stock

market crash caused the Great Depression

but this is not entirely true the stock

market triggered a recession but the

real cause of the Great Depression was

that many banks had extended too many

bad loans and were speculating too much

at this time many US banks were small

and independent shops that lent out a

large amount of their assets to people

for stock market speculation as the

stock market crashed these banks went

out of business overnight there was no

deposit insurance at the time so if a

local bank closed its doors people lost

their money with headlines of many banks

shutting down people began to panic and

pull their savings from healthy banks

this created bank runs on otherwise

healthy banks that had to turn around

and try to get all their customers money

all at

once this became a serious problem when

in New York City a false rumor started

that the Bank of the United States

refused to sell a man's stock this was

enough to cause over $25,000 people to

crowd the bank and by the end of the day

$3 million had been withdrawn from the

bank fear was in the air and worried of

a larger bank run they couldn't handle

the Bank of the United States closed its

doors and asked the state to take over

the bank's assets soon after the bank

failed to get support for a short-term

loan to stop the bank run and would

ultimately close its doors for good it

accounted for a third of the total $550

million deposits lost in the depression

this sent shock waves across the banking

industry and many banks began to call in

loans and sell assets in order to stay

liquid 1th3 of banks in America would

ultimately fail in this time period hey

Joe I just sold my car and have a few

bucks now to pay you back which bank are

you with again are you crazy not a

chance I'm leaving my money in any of

those banks

again with people choosing to hold their

money outside of banks the money supply

in the US declined 31% from 1929 to

1933 and deflation has devastating

effects on an economy by causing the

value of money to go up it reduces

consumers willingness to spend money

discourages investment and increases the

burden for those in debt all of this

leads to wages and income falling and

through this all the Federal Reserve

stood back allowing this money supply

contraction and the banking failures to

happen without any intervention a

crucial mistake that has been widely

criticized for making the depression

much worse than it needed to be through

all of this US President Herbert Hoover

had no idea how to fix this and would

largely be blamed for the lasting

duration of the depression following the

initial stock market crash there was a

growing sentiment for isolationist and

protectionist policies in 1930 he passed

the Smoot Holy Tariff Act to protect US

farmers and other industries from

foreign competitors it increased tariffs

on foreign imports to the US by about

20% which then immediately led to 25

countries retaliating and putting their

own tariffs on American goods global

trade would plummet even further from

this declining 66% worldwide from 1929

to

1934 global trade was a relatively small

piece of the American economy at the

time but this policy only made things

worse in total the Great Depression

would last over 10 years and mark the

worst economic downturn in the history

of the modern world the Dow Jones would

fall 90% from its high in 1929 and many

lost their jobs as companies shut down

on mass 9 million savings accounts were

wiped out over 9,000 US banks had failed

industry halted and unemployment in the

US reached

24.9% its highest point in history to

make matters worse there was a period of

severe dust storms in the middle of the

US that caused a drought high winds and

hurt many farms in what became known as

the Dust Bowl the worst man-made

ecological disaster in American history

as farming in the US slowed down and

with 1/3 of Americans still in

agriculture this would have massive

consequences homelessness and bread

lines became a common sight in America

there would be 34 million people without

any income shanty Towns began appearing

across the country and got the nickname

Hoovervilles after the now disgraced

president could it get any worse in 1932

the US elected President Franklin D

roosevelt who promised drastic changes

and action to get the country out of the

depression with the New Deal program for

helping the needy he established a

minimum wage overtime pay unemployment

insurance and a social security program

as for major banking reforms he enacted

Federal Deposit Insurance on bank

deposits to help prevent bank runs and

he also added the Securities and

Exchange Commission for better reporting

and scrutiny on public companies fdr's

New Deal programs helped to stabilize

the banking industry and restore the

public's confidence however it would

still take several years for the US

economy to fully bounce back with other

countries around the world having also

suffered from the Great Depression this

led to the rise of extremist governments

and World War II would begin just a few

years later in 1939

it wasn't until the start of World War

II in 1939 that the Great Depression

truly ended it was only at this time

that the unemployment rate fell below

10% and the US saw vast stimulus to

support war efforts economists still

argue how much intervention is needed to

solve an economic disaster and the

effect of the New Deal program many of

the lessons learned from the Great

Depression are still used in the modern

day including the need for a small

stable amount of inflation to boost

consumer spending and business

investment an increased role in

government spending and the assistance

from the government to boost the economy

when a recession occurs by learning from

the past we can better understand our

current economic system and see any

potential dangerous parallels in the

future in the end it was greed that

drove people to believe that there was

no price too high for a stock and made

many banks take on bad loans and just

like all bubbles an overinflated market

always sees the same ending of a painful

crash