What caused the Great Depression? Many children ask this question to their grandparents when they hear them recall their experiences during that decade. The Great Depression resulted from all of the borrowing by the banks in the “Roaring Twenties”. “The 1920s ‘boom’ enriched only a fraction of the American people. Earnings for farmers and industrial workers stagnated or fell” (“The Great Depression…”). This was due to lower production costs to run companies. The effect of this was that middle class Americans had to cut down on the products they bought during the late 1920s. Economists during this time period truly believed the stock market could not go down. They believed America had not hit its peak financially and the market would continue to climb. Even though the government warned investors and banks on the dangers of buying on margin, it still became very popular.
According to the article, “The Stock Market Crash of 1929,” B. Taylor defined margin buying by saying: Margins were generally around 50% at the time--that is, a lay investor could give his broker only 50% of the value of the stocks he wanted to purchase and the broker would put up the rest of the money. The investor would then pay interest on the loan that the broker gave him--the 50% value of the stocks. If the stocks increased in value then the investor got to keep all of the profit. When he sold he would pay off his debt to the broker. If the value of the stocks were to decrease below 50% (or some set level) of the price that they were bought at, there would be a “broker's call” where the investor would have to give more money to the broker or sell the stock and pay off his debt. Basically when buying on margin, the stock is used as collateral. When the stock loses money and falls below the margin, money is still owed to the broker. Once well-known economists warned that this “Bull Market” or rise in stocks was on the verge of ending and sold their shares back into the stock market, investors grew weary. This caused a week long collapse in the stock market, due to other investors following suit. Stock prices fell and fell, lowering the prices per share below the margin. As a result, bankers started calling investors, asking for their money back. Investors had to sell everything to pay back their debts, and many could not pay them back at all. Thousands of banks failed as a result. Businesses closed, as they were unable to get credit (“The Great Depression…”). By 1932 with the country in economic shambles, something had to change to attempt to battle the growing panic and poverty in the nation.
The Election of 1932 brought about a change in regime to the American government. Franklin D. Roosevelt, a democrat, defeated republican incumbent Herbert Hoover by a large margin. FDR promised a “New Deal” to fight the Depression. The “New Deal” programs developed more jobs to battle the climbing unemployment rates. Some of Roosevelt’s programs were the Agricultural Adjustment Act, Civilian Conservation Corps, and the Social Security Act. The impact of Roosevelt’s programs can still be felt today. Without the “New Deal”, social security and the Federal Deposit Insurance Corporation would not exist.
Each program of the New Deal had an intricate position to play in the resurrection of the United States of America’s economy. The Civilian Conservation Corps or CCC was created...