Essay the great depression

Submitted By chad442
Words: 1296
Pages: 6

The Great Depression was a worldwide event that was an economic meltdown. Most people agree that the beginning of the Great Depression was Black Tuesday on October 29, 1929. According to Taylor, on that particular Black Tuesday, “the Dow Jones Industrial Average fell almost 23 percent and the market lost between $8 billion and $9 billion in value.” During this time, there was widespread unemployment, homelessness, a major drop in industry, debt deflation and an 89 percent drop in stock prices. Once the depression was started, the stock market continued on its downward spiral with five rallies from Black Tuesday to 1932, but ultimately the Dow continued to fall. This caused unemployment to rise as companies started to consolidate which in turn caused wages to go down since there was such a high demand for work. Since the work force was being paid much less than before, the people that still had a job had a hard time paying off their credit which created a lot of repossessions and foreclosures. Simply put, “As consumers lost buying power industrial production fell, businesses failed, and more workers lost their jobs” (Taylor). President Hoover’s position was that the government should monitor the economy and encourage spending to help slow down the fall. Essentially, his plan was to cut the government expenses, balance the budget and he thought that aid should come from local government; yet he did not want to directly interfere with the economy. He wanted the local governments and private charities to create the jobs and other things to help unemployment. Taylor states that, “As the jobless population grew, he resisted calls from Congress, governors, and mayors to combat unemployment by financing public service jobs.” This caused the unemployment rate to rise above 20 percent in 1932. Hoover’s resistance to allow the government to intervene in the unemployment problem caused it to get worse and eventually cost him the 1932 presidential campaign. In 1933, the banking crisis hit the United States. This was brought about because of the stock market crash and overwhelming unemployment, which made people to lose faith in their banks. What typically happens when people lose faith in their banks, they pull their money out. However, in this situation, the vaults did not hold enough money or the banks did not have enough reserves to hand back over to the people. Once the banking crisis started, Hoover’s plan was to close all the banks for a day and see which banks were able to be reopened and which ones could not be reopened. The congress would not go along with this because it was under democratic control and they were waiting on Roosevelt to be sworn in. During this time, five to fifteen million dollars of gold a day was being withdrawn from banks within the United States. According to LaBorde,
By March 2nd 21 states had closed their banks. Over 200 million dollars in gold had been taken out of US banks. The following day panic spread to the Federal Reserve as 110 million dollars in gold was paid out to foreign banks from New York and Chicago banks. Another 40 million dollars in gold was paid out by other banks on that same day.
On March 4th Roosevelt was sworn in and he announced a four day bank holiday to do what Hoover originally planed on doing. Deflation was another major factor to the Great Depression. It “started in 1930 and eventually led to a 25% decline in the price level” (Mishkin 191). This was brought about because of the huge decline in the stock prices. This had such a major effect because at this time people were borrowing money to buy stocks, which is called buying on margin. Since so many people were now burdened by debt, the overall net worth of the population fell so people began to spend less money which inadvertently caused companies to restructure, which finally led to the rise in unemployment. After experiencing the debt deflation, Fisher wrote his debt-deflation…