Great Depression

Afzal
The Great Depression was the worst economic downturn in the history of the
industrialized world, lasting from 1929 to 1939. It began after the stock market crash
of October 1929, which sent Wall Street into a panic and wiped out millions of
investors. Over the next several years, consumer spending and investment dropped,
causing steep declines in industrial output and employment as failing companies laid
off workers. By 1933, when the Great Depression reached its lowest point, some 15
million Americans were unemployed and nearly half the country’s banks had failed.

Pranay
Throughout the 1920s, the U.S. economy expanded rapidly, and the nation’s total
wealth more than doubled between 1920 and 1929, a period dubbed “ the Roaring
Twenties.”

The stock market, centered at the New York Stock Exchange on Wall Street in New
York City, was the scene of reckless speculation, where everyone from millionaire
tycoons to cooks and janitors poured their savings into stocks. As a result, the stock
market underwent rapid expansion, reaching its peak in August 1929.

By then, production had already declined and unemployment had risen, leaving stock
prices much higher than their actual value. Additionally, wages at that time were low,
consumer debt was proliferating, the agricultural sector of the economy was struggling
due to drought and falling food prices and banks had an excess of large loans that
could not be liquidated.

The American economy entered a mild recession during the summer of 1929, as
consumer spending slowed and unsold goods began to pile up, which in turn slowed
factory production. Nonetheless, stock prices continued to rise, and by the fall of that
year had reached stratospheric levels that could not be justified by expected future
earnings

Avinash

Stock Market Crash of 1929

As consumer confidence vanished in the wake of the stock market crash, the downturn in
spending and investment led factories and other businesses to slow down production and begin
firing their workers. For those who were lucky enough to remain employed, wages fell and
buying power decreased.

Many Americans forced to buy on credit fell into debt, and the number of foreclosures and
repossessions climbed steadily. The global adherence to the gold standard, which joined
countries around the world in a fixed currency exchange, helped spread economic woes from the
United States throughout the world, especially Europe.

Neha

Bank Runs and the Hoover Administration

the country’s industrial production had dropped by half. Bread lines, soup kitchens and rising
numbers of homeless people became more and more common in America’s towns and cities.
Farmers couldn’t afford to harvest their crops, and were forced to leave them rotting in the fields
while people elsewhere starved. 

In the fall of 1930, the first of four waves of banking panics began, as large numbers of investors
lost confidence in the solvency of their banks and demanded deposits in cash, forcing banks to
liquidate loans in order to supplement their insufficient cash reserves on hand.

Bank runs swept the United States again in the spring and fall of 1931 and the fall of 1932, and
by early 1933 thousands of banks had closed their doors.

In the face of this dire situation, Hoover’s administration tried supporting failing banks and other
institutions with government loans; the idea was that the banks in turn would loan to businesses,
which would be able to hire back their employees.
Shivani

Roosevelt took immediate action to address the country’s economic woes, first announcing a
four-day “bank holiday” during which all banks would close so that Congress could pass reform
legislation and reopen those banks determined to be sound. He also began addressing the public
directly over the radio in a series of talks, and these so-called “fireside chats” went a long way
towards restoring public confidence.

During Roosevelt’s first 100 days in office, his administration passed legislation that aimed to
stabilize industrial and agricultural production, create jobs and stimulate recovery.

In addition, Roosevelt sought to reform the financial system, creating the Federal Deposit
Insurance Corporation (FDIC) to protect depositors’ accounts and the Securities and Exchange
Commission (SEC) to regulate the stock market and prevent abuses of the kind that led to the
1929 crash.

Vrinda

The New Deal: A Road to Recovery

the Tennessee Valley Authority (TVA), which built dams and hydroelectric projects to control
flooding and provide electric power to the impoverished Tennessee Valley region, and the Works
Progress Administration (WPA), a permanent jobs program that employed 8.5 million people
from 1935 to 1943.

In 1935, Congress passed the Social Security Act, which for the first time provided Americans
with unemployment, disability support and pensions for old age.

the economy continued to improve throughout the next three years from 1933, during which real
GDP (adjusted for inflation) grew at an average rate of 9 percent per year.
Viraj

Learnings

sound macroeconomic policies in ensuring a strong economy. The Great Depression was not a
failure of capitalism or of markets, but rather a result of misguided government policies—
specifically, the Federal Reserve allowing the money stock to collapse as panics engulfed the
banking system. If the Fed had stepped up to the plate and ensured that banks had ample reserves
to meet their customers’ withdrawal demands, the money stock would not have declined, and the
economy probably would not have sharply contracted.

the importance of price stability. Deflation was an important cause of falling incomes and
financial distress, Price stability is now widely accepted as the paramount goal for monetary
policy because fluctuations in the price level— whether deflation or inflation—can cause
financial instability and hinder economic growth.