Business, Education, Health, My Blog, Shopping, Technology

The Great Depression of the 1930s

While its economy has experienced a severe recession since 2006 when the subprime mortgage crisis blew out of proportion, America’s economic performance today is not as bad as everyone thinks. Anyone that has lived through the Great Depression will say definitely the same thing of America’s current woes – they’re not as bad as every analyst thinks they are.

The Great Depression is a black mark in America’s economic history. It is a time when even the average American could not fend for himself because there were simply no jobs to be had. It was a near-decade of poverty and hardship for the United States of America. Ironically, it would be the onset of the Second World War in Europe that would help America rise from the ashes – its industrial output for the war effort would eventually prove to be its saving grace.

Stock Market Crash of 1929

quote_finance

The catalyst for the Depression was the Stock Market Crash of 1929, which experts in the finance world dub as “Black Tuesday.” By the 1920s, American economy was at a boom. Consumer spending was good, and there were abundant jobs in the industrial centers. Investments in the stock market rose as well.

However, with the excesses brought about by a stable economy, traders were engaged more in speculation. When the Federal Reserve warned of an impending crash due to excessive speculation, the traders did what was to be expected – they start unloading their shares at a fast pace as they sought to hedge themselves against risks. This would start a chain of events that would lead to Black Tuesday, October 29, 1929. On that day, the Dow Jones dropped by 12 percent and the market was seeing a loss of US$30 billion on Black Tuesday alone.

The Depression Begins

Despite efforts by financial giants like the Rockefeller family, William C. Durant, and prominent bankers in Wall Street to inject investment into the stock market, consumer confidence in the economy dropped significantly. Investors who had bought stocks at borrowed money – based on speculation that they could earn profits from the market – instead incurred material debts. Normal consumers decided to hedge themselves against risk and, understandably, kept their spending to a minimum. This, however, had adverse effects on the economy.

With the sudden drop in spending, the economy also suffered a decrease in demand. There was now a sudden excess in supply, and companies in several industries had to slow down on their production. This in turn resulted to an excess in the labor force. To cut costs, companies across the board had to lay off workers at unprecedented rates. By 1933, around 15 million Americans were unemployed and living in poverty.

financialchart

The economy would eventually start to recover in 1933 with the introduction of projects like the Works Project Administration. The WPA opened up 8.5 million job opportunities, and the GDP steadily increased from 1933 until 1936. The economy would experience a hiccup in 1937, which brought back the country to near 1929 statistics although recovery was seen by 1938.

By 1939, Adolf Hitler was already showing signs of aggression in Europe. The strengthening of military capability as a result cemented America’s recovery, as demand once again returned in industries like steel production. New jobs opened as a result, and consumer confidence gradually returned.

By the end of World War II, the US has emerged with a stronger economy, and a more powerful military.