The Great Depression that occurred in the 1930s was a severe economic depression capturing countries worldwide, beginning in the United States. The Black Tuesday of September 4, 1929, marked the start of the process due to the rapid and significant stock prices crash that impacted the US financial capabilities (White 69). As a result, the global gross domestic product (GDP) fell by 15% between 1929 and 1932, which had a devastating impact on both wealthy and developing countries (White 70). Such economic factors as personal income, profits and prices, and tax revenue decreased severely while trade in the international arena fell by more than a half. By 1933, the Great Depression saw its lowest point in the US, with millions of American citizens being unemployed and half of the banks failing.
One of the core contributing factors to the depression of the 1930s was the expansion of the US economy throughout the 1920s when the stock market centered on New York’s Wall Street was the point of reckless speculation. Everyone from millionaires to working-class people turned their savings into stocks, which led to the rapid expansion of the stock market that reached its peak point in August of 1929 (White 70). However, by that point, the production of goods had already decreased while unemployment increased, which meant that the stock prices were significantly higher compared to their real value. Furthermore, worker wages were low, while consumer debt was rising in a geometric progression.
In addition, the economy’s agricultural sector, which was among important contributors to the GDP of the US, was struggling in association with the drought and decreasing prices on food while banks had large loans in excess that were difficult or impossible to liquidate (Worster 11). During the summer of 1929, the economy of the US reached the period of a moderate recession characterized by the overall slowing down the spending of consumers and the increasing stock of unsold goods in industries, which slowed down the production at factories (“Great Depression History”). However, the prices on stocks continued rising, and by the fall of 1929, they had reached extreme levels that did not align with the expected future earnings.
There was an increasing sense of worry about the fate of State banks in the country as some of them were not in the Federal Reserve System and could not receive support from member banks (“Fireside Chat on Banking”). In the fall of 1930, there was an initial out of four waves of banking panic, with significant numbers of investors losing their confidence in banks’ solvency and demanded to return their deposits in cash. However, the election of Roosevelt in 1933 encouraged rapid action associated with passing legislative reforms and the subsequent reopening of banks that would potentially help balance the production in industrial and agricultural sectors, create employment opportunities and encourage economic recovery.
In conclusion, the government tried to support failing banks and suggested that the readjustments in the financial system that would come with the depression would have to come first and have more value than currency or gold. The New Deal initiated by Roosevelt would establish programs and projects that would relieve the burden of the destabilized economy. The Deal was instrumental in the permanent and fundamental change of the federal government in expanding its influence on the economy.
Works Cited
“Fireside Chat on Banking.” The American Presidency Project, 2020. Web.
“Great Depression History.” History, 2020, Web.
White, Eugene. “The Stock Market Boom and Crash of 1929 Revisited.” Journal of Economic Perspectives, vol. 4, no. 2, 1990, pp. 67-83.
Worster, Donald. Dust Bowl: The Southern Plains in the 1930s. Oxford University Press, 2004.