Explain The Conditions And Events That Led To The Great Depression
What conditions and events led to the Great Depression?
The question of a country’s economic affairs is quite a delicate issue. By definition, the economy is regarded as the prevailing conditions in a country with regards to the country’s cash flows, and the production and consumption of different commodities. On this premise, there are usually three economic states that a country might experience. These are economic stability, economic boom, or economic depression. Economic stability is whereby the country experiences minor changes either upwards or downwards on its cash flows, production, and consumption rates. An economic boom, on the other hand, is a situation whereby the country experiences significant rates of economic growth. On the other hand, in during an economic depression, the country experiences reduced cash flows, production and consumption issues hence a negative growth. The great depression of 1929 is a classic example of the effects depression can have on a countries economy. During that time, many companies and businesses were closed, the rates of unemployment significantly increased, the level of poverty and …show more content…
hunger was a sorry sight, to say the least as many families were reduced to begging. This paper proposes to study the depression with a bias on the causes and events that led to the great depression with an assumption that poor economic policies contributed to the adverse effects of the great depression.
The great depression that came into being in the year 1929 was one of the worst economic times experienced by different countries across the world. It went on for a total of ten years ending 1939. A number of economists had attributed the turn of events at the American stock market. In the earlier years, America had experienced a significant economic boom in the early 1920’s. During this period the overall wealth of the country doubled. This led to many cash in circulation hence people had a lot to spend and save (Gutscher). Many people bought shares for speculation driving up the prices of shares to unrealistic levels. This caused a huge expansion in the stock market as everyone invested in speculative stocks.
America’s economy went into recession in the year 1929 prompting investors who feared to lose their money to begin pulling out of the stock market. 12.9 million Shares were traded on a single day that came to be referred to as Black Thursday. This was followed by Black Tuesday where a record 16 million shares were traded leading to the collapse of Wall Street. Millions of Americans who had invested big on the stock market completely lost out. This event caused a loss that was estimated in tens of billions of dollars.
This loss greatly affected the cash flows in the economy.
The American population’s ability to spend on consumer products were adversely affected many goods and products remained in the retail shops and warehouses as dead stock (Gutscher). These events had a ripple effect on the production process as most factories could not continue with production since the already produced goods had not yet been sold to generate revenue for acquiring raw materials and cater for operational costs and employee salaries. These events led to the further crisis as companies and factories were forced to lay off workers as they could no longer afford to pay them. This was a lose-lose situation for the workers as they had lost both their jobs and their investment in the stock markets of these companies. Ultimately, several companies were forced to shut
down.
To add salt to the injury, a severe drought caught up with the country’s food basket. Worst hit areas were Oklahoma, Texas, and Kansas. Sandstorms further destroyed most crops leaving farmers to count losses. Due to abject poverty at the time, very few individuals could actually afford to buy food as most families were reduced to begging. This forced the farmers to sell their products at reduced prices for them to move and not go bad while in stock. Banks and other financial institutions were also affected forcing a significant number of them to close shop.
The above section gives an overview of the catastrophic effects of depression a powerful and developed country such as America was subjected to as a result of the great depression. The situation was much worse in other parts of the world that took close to ten years to recover from the effects of the great depression. It is important for the government to put adequate economic measures to ensure that such kind of economic depression and the related adverse effects are avoided if possible. Therefore, the research seeks to create a deep understanding on the causes of economic depression by discussing the events that preceded the great depression of 1929.
During 1920, the country experiences a huge growth in GDP. This was as a result of the rapid industrialization that the country went through. A number of consumer products were being made, factories were on the rise and many jobs were of the offer. The end result was that there was increased circulation of money that gradually led to a demand-pull inflation in the economy. The fed policies were relaxed as the reserve limits they had placed on the banks were not enough to reduce the money in circulation. People spent more and the economy grew at a double-digit rate. People began to look for investment opportunities in which they opted to buy big shares on the stock market. This created a demand-pull inflation on the share prices as they went up to unreasonable levels. Therefore one of the causes of the great depression wee poor monetary policies by the fed to control the amount of money in circulation leading to inflation.
Another factor that led to the great depression was the collapse of the stock market in 1929. This event is usually mistaken to be the actual great depression. However, it was one of the most significant contributors to the depression. The collapse following black Tuesday and black Thursday where more than 25 million shares were traded in just two days led to a loss of more than 40 billion dollars. This gave the country a huge economic blow that it was unable to recover from more than one year since the crash.
Another cause of the great depression was the failure of many banks in 1930. The crush of the stock market had a huge impact that trickled to all sectors of the economy, banks included. During this time, many banks were never insured despite harboring huge amounts of customers' deposits and life savings. Therefore, when the banks failed and closed down, they went down with most of the saving people had made throughout their lives turning them into instant poverty. The few surviving banks were shaken by the turn of events and were not willing to give out any new loans in order to ensure their survival. This made the existing poverty situation much worse as there was no money and no one was willing to lend out some.
The fact that most Americans had been turned into instant poverty when their savings and investments were lost when the stock markets crashed and the bank collapsed meant that there was very little money in circulation. Very few people could afford a decent meal for their families since many people had lost their jobs due to a closure of many industries. This dire situation meant that the amount of disposable income had diminished leading to the reduced purchasing power of the customer. The fear of spending increased among the consumers as many were saving the little they had for the worse days ahead. The payments plan for different items were defaulted leading to their repossession. Accumulation of stock items in many stores meant businesses could not afford to keep their employees leading to further job loss that crippled the ability to spend even more.
When the American businesses began failing from the biting depression, the government implemented a policy in a bit to protect them from the external competition. The government took to discouraging imports from other parts of the world by charging high tax rates in order to give locally produced goods a more competitive price. This move greatly reduced the trade volumes between America and Europe as the American exports were also charged high taxes further affecting more companies in the country. Therefore even the export possessing companies were also dragged into the great depression.
The question of a country’s economic affairs is quite a delicate issue. By definition, the economy is regarded as the prevailing conditions in a country with regards to the country’s cash flows, and the production and consumption of different commodities. On this premise, there are usually three economic states that a country might experience. These are economic stability, economic boom, or economic depression. Economic stability is whereby the country experiences minor changes either upwards or downwards on its cash flows, production, and consumption rates. An economic boom, on the other hand, is a situation whereby the country experiences significant rates of economic growth. On the other hand, in during an economic depression, the country experiences reduced cash flows, production and consumption issues hence a negative growth. The great depression of 1929 is a classic example of the effects depression can have on a countries economy. During that time, many companies and businesses were closed, the rates of unemployment significantly increased, the level of poverty and …show more content…
hunger was a sorry sight, to say the least as many families were reduced to begging. This paper proposes to study the depression with a bias on the causes and events that led to the great depression with an assumption that poor economic policies contributed to the adverse effects of the great depression.
The great depression that came into being in the year 1929 was one of the worst economic times experienced by different countries across the world. It went on for a total of ten years ending 1939. A number of economists had attributed the turn of events at the American stock market. In the earlier years, America had experienced a significant economic boom in the early 1920’s. During this period the overall wealth of the country doubled. This led to many cash in circulation hence people had a lot to spend and save (Gutscher). Many people bought shares for speculation driving up the prices of shares to unrealistic levels. This caused a huge expansion in the stock market as everyone invested in speculative stocks.
America’s economy went into recession in the year 1929 prompting investors who feared to lose their money to begin pulling out of the stock market. 12.9 million Shares were traded on a single day that came to be referred to as Black Thursday. This was followed by Black Tuesday where a record 16 million shares were traded leading to the collapse of Wall Street. Millions of Americans who had invested big on the stock market completely lost out. This event caused a loss that was estimated in tens of billions of dollars.
This loss greatly affected the cash flows in the economy.
The American population’s ability to spend on consumer products were adversely affected many goods and products remained in the retail shops and warehouses as dead stock (Gutscher). These events had a ripple effect on the production process as most factories could not continue with production since the already produced goods had not yet been sold to generate revenue for acquiring raw materials and cater for operational costs and employee salaries. These events led to the further crisis as companies and factories were forced to lay off workers as they could no longer afford to pay them. This was a lose-lose situation for the workers as they had lost both their jobs and their investment in the stock markets of these companies. Ultimately, several companies were forced to shut
down.
To add salt to the injury, a severe drought caught up with the country’s food basket. Worst hit areas were Oklahoma, Texas, and Kansas. Sandstorms further destroyed most crops leaving farmers to count losses. Due to abject poverty at the time, very few individuals could actually afford to buy food as most families were reduced to begging. This forced the farmers to sell their products at reduced prices for them to move and not go bad while in stock. Banks and other financial institutions were also affected forcing a significant number of them to close shop.
The above section gives an overview of the catastrophic effects of depression a powerful and developed country such as America was subjected to as a result of the great depression. The situation was much worse in other parts of the world that took close to ten years to recover from the effects of the great depression. It is important for the government to put adequate economic measures to ensure that such kind of economic depression and the related adverse effects are avoided if possible. Therefore, the research seeks to create a deep understanding on the causes of economic depression by discussing the events that preceded the great depression of 1929.
During 1920, the country experiences a huge growth in GDP. This was as a result of the rapid industrialization that the country went through. A number of consumer products were being made, factories were on the rise and many jobs were of the offer. The end result was that there was increased circulation of money that gradually led to a demand-pull inflation in the economy. The fed policies were relaxed as the reserve limits they had placed on the banks were not enough to reduce the money in circulation. People spent more and the economy grew at a double-digit rate. People began to look for investment opportunities in which they opted to buy big shares on the stock market. This created a demand-pull inflation on the share prices as they went up to unreasonable levels. Therefore one of the causes of the great depression wee poor monetary policies by the fed to control the amount of money in circulation leading to inflation.
Another factor that led to the great depression was the collapse of the stock market in 1929. This event is usually mistaken to be the actual great depression. However, it was one of the most significant contributors to the depression. The collapse following black Tuesday and black Thursday where more than 25 million shares were traded in just two days led to a loss of more than 40 billion dollars. This gave the country a huge economic blow that it was unable to recover from more than one year since the crash.
Another cause of the great depression was the failure of many banks in 1930. The crush of the stock market had a huge impact that trickled to all sectors of the economy, banks included. During this time, many banks were never insured despite harboring huge amounts of customers' deposits and life savings. Therefore, when the banks failed and closed down, they went down with most of the saving people had made throughout their lives turning them into instant poverty. The few surviving banks were shaken by the turn of events and were not willing to give out any new loans in order to ensure their survival. This made the existing poverty situation much worse as there was no money and no one was willing to lend out some.
The fact that most Americans had been turned into instant poverty when their savings and investments were lost when the stock markets crashed and the bank collapsed meant that there was very little money in circulation. Very few people could afford a decent meal for their families since many people had lost their jobs due to a closure of many industries. This dire situation meant that the amount of disposable income had diminished leading to the reduced purchasing power of the customer. The fear of spending increased among the consumers as many were saving the little they had for the worse days ahead. The payments plan for different items were defaulted leading to their repossession. Accumulation of stock items in many stores meant businesses could not afford to keep their employees leading to further job loss that crippled the ability to spend even more.
When the American businesses began failing from the biting depression, the government implemented a policy in a bit to protect them from the external competition. The government took to discouraging imports from other parts of the world by charging high tax rates in order to give locally produced goods a more competitive price. This move greatly reduced the trade volumes between America and Europe as the American exports were also charged high taxes further affecting more companies in the country. Therefore even the export possessing companies were also dragged into the great depression.