What Caused The Great Depression Essay

The Great Depression was an economic recession that took place in the 1930s. It originally started in the United States in October 29, 1929 when the stock market dropped tremendously. The whole country spiraled as well as much of the world, banks closed, GDP decreased, and unemployment reached an all-time high. “By 1932, according to the relatively crude statements of that time, 2 percent of the American workforce was unemployed” (Brinkley 568). Things were so tough in the US; laws were made that only allowed one member of a family to hold a federal civil service job. The book identified many problems that caused the global depression, I think the principal cause was debt. The Roaring Twenties created an attitude which led to the mindset of
“get rich quick”. Mass consumerism was leading people to spend more money they were able to earn and encouraged people to spend their money recklessly. People were now caught up in being the best among their friends by buying beauty products and household appliances.
Nothing is wrong with owning those things, but people went into debt chasing the latest and greatest. If you do not believe me, look at the graph below. Another major cause of the Great Depression was the failure of the Federal Reserve. “To provide the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, for other purposes” (The Federal Reserved Act 1913). While reading the chapter and discovering that over 9,000 banks closed their doors, I couldn’t help, but wonder why the Federal Reserve was not doing their job. The first mistake they made was, the Federal Reserve allowed prices to fall into deflation. Another mistake the reserve made, was it did not do anything to stabilize the financial system. When banking panics begin, the Federal Reserve failed to increase money available to banks. The whole banking system of the United States collapsed; people were not able to withdraw, make loans, or even deposit money. Debt and poor decisions made by the Federal Reserve are principle causes of the Great
Depression. Citizen should have spent their money more wisely and avoided debt. The Federal Reserve should have made money available to prevent bank runs and reduce the overall panic among Americans.

I think here in the twenty first century, we are not any better insulated for a major economic depress. It was only 8 years ago when unemployment peaked at 10 percent. That is not as bad as the Great Depression, but after all we know it still happened. We now live in a time where the Federal Reserve is out of solutions. A national debt of nearly 20 trillion dollars does not leave much wiggle room. We live in a day and age where money is “loaned into existence”. Money is created as loans; thus it represents debts based on only having 10% reserved. The interest that will be owed is not created when banks create the loan. How would pay for interest? By loaning more money to pay interest on the money already owed. It essentially means that interest unpayable without creating more debt. In this system debt grows exponentially until new loans are unable to be paid ending in a default.