Great Depression’ History: Causes and Regulations Essay

October 14, 2020 by Essay Writer

The Great Depression that happened in the 1930s was the gravest and prolonged economic downturn in the history of the developed Western world. The slump began immediately after the stock market crash of October 1929 that sent Wall Street into a panic and caused heavy losses to investors. Also, consumer spending and investment dropped significantly, culminating in reduced industrial output and increased unemployment levels due to job retrenchment by failing companies; banks included.

The United States Federal government takes the blame for the mishandling of the economy, a state that led to the Great Depression. A similar situation had occurred in 1907, and the government responded appropriately by creating the Federal Reserve to inject cash into the market and minimize financial reliance on private companies. This effort ensured a swift recovery from the recession. The crash of 1929, however, saw the Fed cutting the money supply drastically. As a result, many banks suffering from the liquidity crunch collapsed, and hopes of recovery from stagnation shuttered.

Other factors that contributed to the subsequent market collapse include droughts and low food prices, low wages, the increase of debt, and excess of large bank loans. Similarly, the stock exchange that had been transformed from a securities market into a gambling house by the inclination to use the excess money for speculation, the reduction in mass purchasing power and the lack of government policies to regulate savings and fiscal circulation had a role to play in fuelling the economic mess.

The 1929 securities market crash saw a decline in stock prices and urgency by investors to dispose of a lot of shares to avoid heavy losses. However, this situation led investors to lose billions of dollars in bad debts, leaving them utterly helpless. The stock prices continued to plummet, and by 1932 they had dropped to a third their paper value before the recession. The decline in stock prices and financial losses assisted in speeding up the global economic collapse with the crises such as failing banks and increased unemployment ensuing.

To address the then prevailing economic calamity, the newly elected President Roosevelt came up with a strategy that involved addressing the public to restore their confidence and the New Deal that comprised legislation directed at stabilizing industrial and agricultural sectors to create jobs and Kindle rapid recovery. His administration sought to reorganize the financial system by creating the Securities and Exchange Commission (SEC) to control the activities of the stock market and prevent manipulations of the manner that led to the 1929 crash.

He also established the Federal Deposit Insurance Corporation (FDIC) to safeguard bank deposits. He used social security systems, e.g., unemployment insurance, and income tax system to increase government expenditure and reduce government revenues. The systems helped to arrest the drop in the economy and resulted in GDP growth. Roosevelt also signed the GI Bill of Rights intended to provide benefits to soldiers returning from World War ‖.

Further, the New Deal comprised programs and institutions that transformed the lives of Americans significantly. Notable among these was the Tennessee Valley Authority (TVA), whose mandate was to build dams and set up hydroelectric projects to control flooding and supply electric power to that region. The second program was the Works Project Administration that provided employment to millions of people. Others included the Civilian Conservation Corps that functioned as a relief and work program for the youth, The Federal Emergency Relief Administration, the National Industrial Act for price and wage regulation.

While the reasons for the Great Depression were several, the stock market crash of 1929 stood out as the primary accelerator of the slump. Even though Wall Street has experienced several security market crashes, none has borne a prolonged global impact as the one witnessed in 1929. Only the diverse financial strategies and policies contained in the New Deal could disentangle America’s economy from its devastating grip.

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