Sunday, December 3, 2017

What was the Great Depression?

History of the United States was not all filled with sunny days and romanticisms – the Great Depression during the early 20th century was one of worst afflictions when those concepts were practically nonexistent. It was time of financial disasters when everybody had debts they could not pay, factories ceased productions, farmers burned their crops for fuel instead of selling them, and banks were closed with empty vaults; all happened while the governments did not seem to care.

Just like a good movie, the state of financial misfortune started with a nice blissful dreamy depiction of life, followed by hardships, and ended with some smiley optimistic faces; because the producer expected to make a sequel, however, another scene of calamitous event was included somewhere between the end credits.

As soon as World War I ended, the U.S. economy was having good times throughout the 1920s marked with the increase of purchasing power on consumers’ part, and supported by inventions of new products as well as expansion in production capacity. Enormous scale of products were manufactured and sold throughout North America, partly thanks to the implementation of Prohibition so Americans (well, most of them) were sober and sane enough to save money to buy a lot of stuffs other than anything that came out of breweries. This prosperous period was known as the Roaring Twenties; the term came to the surface because apparently everyone was screaming loudly during these times when they had money in their wallets and a shiny pocket watch in their jacket, but any snobby classic car enthusiast would beg to differ.

What Caused the Great Depression?

As it turned out, some speculative Americans could not resist the temptations of recklessness and greed despite the reduced consumptions of alcoholic beverages, so it must have been something else, like meatloaf for example. At the New York Stock Exchange in Wall Street, instances of poorly educated decision in buying stocks happened far too common. People of all professions including lawyers, farmers, yoga instructors, and ghost hunters used their savings to purchase stocks. They were under the presumptions that the stock prices would continue to grow up, so it was all fine to make investments even if they had to borrow money from the banks to do that. Even many banks were happy to give loans because people would invest the money into profitable healthy stock market. As a result, the stock market was skyrocketing for nearly a decade long before it eventually ran out of fuel and went dead-stick in August 1929.

Most Americans did not realize that productions had already been in a decline by then, while unemployment rate had gone the other direction. Agricultural sector was also struggling due to drought yet food prices were falling thanks to over production in factories. Some banks also had made huge loans to foreign countries under false expectations that those countries would build their economy and eventually be able to repay their debts from World War I – this was probably the finest example that you did not actually have to be smart to work in a bank. When European nations decided to default on their loans, a lot of nasty things happened: banks went bust, depositors withdrew their money, and the country’s banking system was mostly shut down. Stocks being sold and bought were all overpriced.

Nervous yet savvy investors who were aware of the trend began selling overpriced stocks in October 24th 1929; in fact, nearly 13 million shares were traded in the day known as Black Thursday. Some wealthy investors tried to slow down the decent of stock prices by buying large chunks of shares but it was to no avail. Only five days later, or the Black Tuesday, another 16 million shares were traded, rendering huge volume of stocks basically worthless. Those who bought the stocks in margin were wiped out. People who borrowed money to buy stocks could not repay their debts. Businesses slowed down and factories reduced production capacities – these rendered people jobless, homeless, and hopeless. Many employees sold their all their properties to pay a portion of debts, while farmers could not sell crops because factories had a good amount of them unprocessed.

What was the Great Depression
During Great Depression, it was common to see people use their jackets as beds and helmets as hats
There was something even more bewildering. Roaring Twenties was the time when the nation’s wealth nearly doubled, but good housing, good education, shiny shoes, and leather trench coats were almost exclusive to relatively a small number of Americans. Others who appeared rich actually borrowed money from banks and could not fulfill their obligations because their employers had to do massive a layoff, hence more poor people.

When Was the Great Depression?

The short answer was, quite a long time. Series of events in Wall Street that led to Great Depression started to happen in 1929. Investors along with thousands of banks who speculated in the stock market would eventually collapse; depositors who still had money in the banks could not do anything to prevent their bankruptcies. When banks closed down, the money went with them. Only this time, there was no money to take but at least they could still carry some empty bags and sold them to an antique store. Herbert Hoover was still President, and he believed that the government should not directly get involved in the market and therefore was not responsible for creating jobs. He was wrong.

In 1932, Franklin D. Roosevelt was elected President, and the United States saw a glimpse of hope. FDR initiated a type of insurance that would protect depositors in case banks went out of business again. The Federal Deposit Insurance Corporation or FDIC was created in 1933; this meant that depositors could still get their money out even when banks failed. It encouraged Americans’ confidence to leave their money in the banks and let the financial system works a way out. Another part of the recovery process from Great Depression was creation of new jobs through government projects such as building new dams and electric power plants. There was also the Social Security Act. 

Biggest and most bitter resolution from Great Depression was actually US involvement in World War II. Wartime economy and manufacturing efforts put many people back to work and filled factories with production lines again. Many Americans fought and died during the war, and more of them found employment which indirectly helped the Allied forces to victory.