the great depression

The Great Depression

The 1920's had a wealthy, gilded veneer, and the general mood of the country corresponded to this belief that the country was in an economic upswing. The stock market was climbing, and it was expected to continue to do so. However, people were investing in part to make a quick buck, but also for the prestigious status that accompanied investing. Neither of these result in a stable economy. Furthermore, subtle economic clues were ignored, such as productivity and consumption.

Many public policies were influenced by economists who believed that the market was always self correcting, and therefore officials adopted a attitude with money. The Federal Reserve Board kept discount rates low, which encouraged excessive and irresponsible investment. These investments kept businesses expanding, and the expanding businesses produced more. Thus, overproduction began to get out of hand. Furthermore, the government wanted to spend more than ever before, despite Franklin Roosevelt's misgivings (he was not yet president). Essentially, he economy overbuilt itself, and couldn't stop once it started.

Those are long term causes. The short term causes, the ones that actually started the Depression, are a bit simpler. When the economy began to go south, small banks faced customers defaulting on loans because of a spike in real estate rates. Large banks, like citizens, were overinvested in the stock market, which, as stated earlier, led to overproduction. When businesses started going bankrupt because they were producing too much, people lost their investments. Banks started to fail.

This sparked a panic, and there was an exstream rush to pull money out of the stock market because people feared more bankruptcy. However, there was no one to buy the stock that people were trying to sell, so more companies started to fail. Major banks started to fail as well because of their ties to the stock market, and all the money people had stored in these banks was gone. Thus, people lost life savings and became very poor very quickly.

The end of the Great Depression was due in large part to Franklin Roosevelt. FDR had very socialist policies (known collectively as the New Deal), which means that the government controls things instead of having them privately owned by businessman.

These social policies, however, were exactly what the country needed at the time. FDR started public works, which employed people to build and repair things. He also gave grants to starving artists to paint, write, and create. Roosevelt crafted the National Industrial Recovery Act, which gave government the right to regulate businesses. However, this was soon ruled constitutional. World War II also proved to be a boon to the U.S. economy. People were needed for the production of military goods, such as ammuntion and tanks, and this opened up many, many jobs. With jobs opening up, people could again begin to spend money, and companies could begin to grow.