Great Depression of 1929

What Was the Great Depression of 1929?
The Great Depression of 1929 was a worldwide economic depression that lasted for 10 years. Its kickoff was “Black Thursday", October 24, 1929. That's when traders sold 12.9 million shares of stock in one day. It was triple the usual amount. Over the next four days, stock prices fell 23 percent. That's called the stock market crash of 1929.

Unemployment Reached 25 Percent
The height of the Depression was 1933. By then, unemployment had risen from 3 percent to 25 percent of the US’s workforce. Wages for those who still had jobs fell 42 percent. Gross domestic product was cut in half, from $103 billion to $55 billion. That was partly because of deflation. Prices fell 10 percent each year. Panicked government leaders passed the Smoot-Hawley tariff to protect domestic industries and jobs. As a result, world trade plummeted 65 percent as measured in U.S. dollars. It fell 25 percent in the total number of units.

What Caused It?
The tight monetary policy of Federal Back is blamed for Great Depression. It used tight monetary policies when it should have done the opposite.

• The Fed began raising the fed funds rate in the spring of 1928. It kept increasing it through a recession that began August 1929. That's what caused the stock market crash in October 1929.
• When the stock market crashed, investors turned to the currency markets. At that time, the gold standard supported the value of the dollars held by the U.S. government. Speculators began trading in their dollars for gold September 1931. That created a run on the dollar.
• The Fed raised interest rates again to preserve the dollar's value. That further restricted the availability of money for businesses. More bankruptcies followed.
• The Fed did not increase the supply of money to combat deflation.
• Investors withdrew all their deposits from banks. The failure of the banks created more panic. The Fed ignored the banks' plight. This situation destroyed any of consumers’ remaining confidence in financial institutions. Most people withdrew their cash and put it under their mattresses. That further decreased the money supply.
• The Fed did not put enough money in circulation to get the economy going again.Instead, the Fed allowed total supply of U.S. dollars to fall 30 percent.

What Ended the Great Depression of 1929?
In 1932, Franklin D. Roosevelt was elected as president of USA and he promised to create federal government programs to end the Great Depression.which was called 'New Deal'. It created 42 new agencies. They were designed to create jobs, allow unionization and provide unemployment insurance. They are as following-

• Relief, Recovery, Reforms was the main agenda of the New Deal.
• To generate new employment Tennessee Valley Authority was created to undertake construction works.
• More funds was provided through Federal Emergency Relief Administration (FERA) to the local and state government to increase government expenditure to stimulate Private investment funds for states and local governments.
• Federal Reserve Bank increase liquidity through increasing loans to increase demand in the economy.
• Security Exchange Act 1934,license to the stock exchange to increase capital follow into the industries. Securities and Exchange Commission (SEC) was also established to regulate the U.S. stock markets.
• National Industrial Recovery Act (NIRA) was established for labour reforms like Raising worker wages and lower working hours. Collective bargaining between employer and workers was also promoted.
• To increase depositors confidence and protect their accounts Federal Deposit Insurance Corporation (FDIC) was established.
• Farmers income was induced through Agricultural Adjustment Act (AAA) which provided more compensation to farmers and raised agriculture prices.

Was it the New Deal or the World War II which ended the Great Depression of the 1930s?

• Many any Keynesian economists believe that it was actually the big government spending during World War II which ended the Great Depression. The military guns, tanks, ships, and planes were mass produced. Unemployment started to decline at the start of World War II.
• However, It is argued that WWII had its roots in the Depression. Financial stress made Germans desperate enough to elect Adolf Hitler's Nazi party to a majority in 1933. If US had spent enough on the New Deal to end the Depression before Hitler rose to power, World War II might never have happened.
• Though the Allies and the Axis Powers had been at war since 1939, the United States remained neutral until the Japanese attacked Pearl Harbor on December 7, 1941. World War II ushered in numerous social changes, including more civil liberties and the movement of women into previously male-only jobs.The country emerged from World War II a very different nation – it solidified America’s role as a global power.

Could a Great Depression Happen Again?
     A depression on the same scale could not happen the same way. Central banks around the world, including the U.S. Federal Reserve, have learned from the past. They know how to use monetary policy to manage the economy. But monetary policy can't offset fiscal policy. The sizes of the U.S. national debt and the current account deficit could trigger an economic crisis. That would be difficult for monetary policy to fix. No one can be certain what will happen, since the current U.S. debt level is unprecedented. This has also been proved by the Global Economic Recession of 2008-09 which points to the fact that today's complex world economic order needs international consensus to tackle any such possibility.

By: Deepak Thakur