Great Depression (1930)
The Great Depression represents one of the darkest periods in American economic history. Most people think the Great Depression started in October 1929, with the famous Black Tuesday stock market crash, but economists and historians point to an economic downturn which took hold in early 1929. The stock market crash led to unprecedented selling of 1, 30, 000, 00 shares alone on 24th Oct, 1929. This stock market crash is often known as ―Wall Street Crash.
Franklin D. Roosevelt‘s New Deal is largely credited with bringing America out of the Great Depression by providing jobs and relief, but in truth, the country didn‘t fully recover until 1941, when munitions and ammunition factories geared up for World War II.
Causes of Great Depression
- Dust Bowl Draught
From 1930-1936, American farmers struggled with conditions of the Dust Bowl, a drought that affected more than a million acres of farmland, and the result was mass migrations of people from rural lands to urban areas.
- Unequal Distribution of Wealth
Although the nation’s wealth grew by billions throughout the 1920s, it was not distributed evenly. The top 1% received a 75% increase in their disposable income while the other 99% saw an average 9% increase in their disposable income. 80% of Americans had no savings at all.
- War Debts
At the end of World War I, European nations owed over $10 billion to their former ally, the United States. Their economies had been devastated by war and they had no way of paying the money back. The U.S. insisted their former allies pay the money. This forced the allies to demand Germany pay the reparations imposed on her as a result of the Treaty of Versailles. All of this later led to a financial crisis when Europe could not purchase goods from the U.S. This debt contributed to the Great Depression.
- High Tariffs
In 1922, the U.S. passed the Fordney-Mc Cumber Act, which instituted high tariffs on industrial products. A tariff is a tax on imports. Other nations soon retaliated and world trade declined helping bring on the great depression.
- Overproduction in Industry
Factories were producing products; however wages for workers were not raising enough for them to buy. Few workers could afford to buy the factory output. The surplus products could not be sold overseas due to high tariffs and lack of money in Europe.
- Farm Overproduction
Due to surpluses and overproduction, farm incomes dropped throughout the 1920‘s. The price of farm land fell from $69 per acre in 1920 t0 $31 in 1930. In 1929 the average annual income for an American family was $750, but for farm families it was only $273. The problems in the agricultural sector had a large impact since 30% of Americans still lived on farms.
- Stock Market Crash
24th Oct 1929, Stock Market Crash lead to selling of 1,30,000,00 shares in one day because stocks were overpriced due to speculation, meaning they were not worth their sale price. Massive fraud and illegal activity occurred due to a lack of regulation and rules. Margin buying, or buying using credit
Effects of the Great Depression Facts
The primary effect of the Great Depression was that it caused millions of workers to lose their jobs. Unemployment during the Great Depression rose from 3% in 1929 to 25% by 1933.
- People lost their life savings
Because of the Great Depression, more than 9,000 banks closed during the 1930s, causing millions of people to lose their life savings.
- Drop in US GNP
From 1929 to 1933, the U.S. Gross National Product (which is a measurement of how many goods and services are produced in a year) dropped by 33%.
- Federal welfare or social programs
At the start of the Great Depression, there was no federal welfare or social programs in place. Out of the Great Depression and FDR‘s New Deal, these programs were created: Civilian Conservation Corps (CCC); Federal Housing Administration (FHA); Public Works Administration (PWA); Social Security Act (SSA).
- Increased Taxes
One of the effects of the Great Depression is that the tax rate changed significantly for the wealthiest Americans. In 1927, the top tax rate was reduced to 25%, which is a large part of what caused the Great Depression. In 1932, in an effort to pull out of the Great Depression, the rate was raised to 63%. In 1936, it was bumped again, to 79%. In 1945, it reached an incredible 91% and hovered at 88% or greater until 1963 when it was reduced to 70%. In comparison, today‘s top tax rate is 35%.
- The FDIC was created to insure that people‘s money would be safe and protected against bank failures.
- Changes in Stock Market
Changes were made to the stock market to prevent rampant speculation and further crashes, the most notable of which was that people could no longer buy stocks on margin
Great Depression Facts
- At its highest point during the Great Depression, unemployment reached 25% (in 1933).
- The Great Depression began in 1929 and ended in 1941 when America prepared to enter World War II.
- Social Security, a program that continues to this day, was introduced by Franklin D. Roosevelt in the midst of the Great Depression.
- The ―Roaring Twenties‖ weren‘t roaring for everyone. By 1929, 1% of Americans controlled 40% of the wealth in this country.
- The Federal Deposit Insurance Corporation (FDIC) was formed in 1934 to insure deposits in banks and restore customers‘ faith in the American banking system.
- The Dust Bowl years spanned 1930-1936, when a million acres of farmland across the Plains became worthless due to severe drought and over farming.
- After the stock market crash in 1929, it took 27 years to reach pre-crash levels.
- In 1939, the unemployment rate in America had dropped from a high of 25% to 15%, largely due to the New Deal programs introduced by Franklin D. Roosevelt.
- Tuesday, October 29, 1929 is known as Black Tuesday because of the plunge the stock market took, and it largely symbolizes the start of the Great Depression, though the economy had been in decline for at least six months prior to that date. By 1933, more than 11,000 of the nation‘s 25,000 American banks had shuttered victims of the Great Depression.
- In March 2012, it was reported that 4 out of 15 of the major U.S. banks (including Citigroup) wouldn‘t survive another severe recession, much less a depression.