The Great Depression Paper

The Great Depression

The great depression was the worst economic depression in the United States (US), doing down in history as the most disastrous depression that the country experienced. The great depression occurred due to a number of factors that catapulted the world into an economic disaster. One major contributor to the depression was the stock market crash in 1929 that broke consumers’ confidence and jeopardized the stock market’s integrity. In the early 1920s, confident consumers bought most goods on credit since business was good (Judge & Langdon, 2016). Due to the flourishing business environment, many people bought shares or stocks in commercial enterprises and everyone was making money. In 1929, investors began to fear that the market overpriced stocks far higher than expected, which led to many investors selling their stocks or shares (Judge & Langdon, 2016). The result was the decline of demand for stocks, which led to the decrease of prices and started the chain reaction leading to the great depression.

The Stock Market Crash

On October 24 and 29, aptly named Black Thursday and Black Tuesday respectively, many stocks lost half of their value because of the fall out of the selling trend experienced at the New York Stock Exchange. Americans who were afraid of losing their money stopped buying, leading to a decrease in demand for goods and forcing manufacturers to reduce their production rates thereby contributing to mass layoffs. On the other hand, banks failed since people could not pay their outstanding loans. This failure occurred because the layoffs caused an upsurge in unemployment while investors could not pay their dues because of the downfall of businesses all across the market. The situation led to investors and many other people withdrawing their cash from banks, with banks that had loaned the money to other people finding themselves unable to collect. Such defaulting behavior forced some banks to close, robbing many people of their life savings.

Protectionist Policies and Global Ramifications

Some banks found themselves having to demand full repayment of loans given to European firms to survive since these firms had heavy loans from the US banks, borrowed to finance the Great War and subsequent postwar recovery. They increased duties on imports from other countries. Desperate Americans tried to protect the decline of US industries from competition by placing huge duties on things that the country imported, thereby leading to the globalization of what was previously a national economic depression. Thousands of American economists signed an appeal saying that the measure would ruin the world economy but regardless of their protests, President Herbert Hoover signed it into law a protectionist policy seeking to preserve the integrity of the US economy (Judge & Langdon, 2016). The law caused an economic crisis in some countries such as Brazil, who used to supply coffee and sugar but lost their markets in the US due to unfavorable import policies.

Global Economic Devastation

Due to the actions by the American government, many countries responded with their own economic nationalism by erecting tariff walls and trade barriers so that they could protect the industries in their countries as well as their products from international competition. The resulting backlash was so bad that it led to the world’s economic devastation. Unemployment increased at a high rate due to worker layoffs and the collapse of numerous banks. The great depression became a calamity across the world. Since 1929 to 1932, production in many industries decreased by 38% worldwide (Judge & Langdon et. al, 2016). Many people lost their homes as banks foreclosed on mortgages that remained unpaid by the unemployed workers. Able-bodied Americans lined up for apples sold for nickels on street corners or rations of bread, with some committing suicide and others leaving their families as the food shortage worsened the depression. A global agricultural crisis resulted from unemployment and the subsequent decrease in demand for food, further damaging the farmers and the agricultural economy everywhere and deepening the suffering that the global economic depression caused.

References

Judge, E. H., & Langdon, J. W. (2016). Connections: A World History. Pearson Education.