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What Factors Led To The Great Depression

Before The Crash: A Period Of Phenomenal Growth

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In the first half of the 1920s, companies experienced a great deal of success in exporting to Europe, which was rebuilding from World War I. Unemployment was low, and automobiles spread across the country, creating jobs and efficiencies for the economy. Until the peak in 1929, stock prices went up by nearly 10 times. In the 1920s, investing in the stock market became somewhat of a national pastime for those who could afford it and even those who could notthe latter borrowed from stockbrokers to finance their investments.

The economic growth created an environment in which speculating in stocks became almost a hobby, with the general population wanting a piece of the market. Many were buying stocks on the practice of buying an asset where the buyer pays only a percentage of the asset’s value and borrows the rest from the bank or a brokerin ratios as high as 1:3, meaning they were putting down $1 of capital for every $3 of stock they purchased. This also meant that a loss of one-third of the value in the stock would wipe them out.

Fallout From The March

The Bonus Army incident did not affect the military careers of MacArthur or Patton, who was roundly criticized for dismissing an approach by a decorated veteran who had reportedly saved his life during World War I. The violent event, however, proved disastrous for the political career of Hoover, whose chances at reelection were dealt a massive blow by the negative publicity. He lost the 1932 presidential election in a landslide to Democrat Franklin D. Roosevelt.

Hoover and Roosevelt, 1933: Outgoing President Herbert Hoover, left, drives with Franklin D. Roosevelt on the day of FDRs March 1933 inauguration in Washington, D.C.

A second, smaller Bonus March in 1933 at the start of the Roosevelt administration was defused with an offer of jobs for veterans in the Civilian Conservation Corps at Fort Hunt, Virginia. Most of the marchers accepted jobs in the CCC, a newly created public work-relief program that lasted through 1942. Those who chose not to work for the CCC by the May 22 deadline were given transportation home from Washington. In 1936, Congress overrode President Roosevelts veto and paid the veterans their bonuses years early.

The Great Depression And Us Foreign Policy


The Great Depression of the 1930s was a global event that derived in part from events in the United States and U.S. financial policies. As it lingered through the decade, it influenced U.S. foreign policies in such a way that the United States Government became even more isolationist.

The origins of the Great Depression were complicated and have been much debated among scholars. The initial factor was the First World War, which upset international balances of power and caused a dramatic shock to the global financial system. The gold standard, which had long served as the basis for national currencies and their exchange rates, had to be temporarily suspended in order to recover from the costs of the Great War, but the United States, European nations, and Japan put forth great effort to reestablish it by the end of the decade. However, this introduced inflexibility into domestic and international financial markets, which meant that they were less able to deal with additional shocks when they came in the late 1920s and early 1930s. The U.S. stock market crash of 1929, an economic downturn in Germany, and financial difficulties in France and Great Britain all coincided to cause a global financial crisis. Dedication to the gold standard in each of these nations and Japan, which only managed to return to it in 1930, only made the problem worse and hastened the slide into what is now known as the Great Depression.

The International Depression


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Discuss The Causes Of Hitler’s Rise To Power

The Treaty of Versailles was the Treaty signed by Germany, France, Britain, and the USA in 1919 on June 28th. The Big Three all had their personal aggressions towards Germany and as a result the Treaty was rather harsh. The Treaty of Versailles was significant to some extent to Hitlers rise to power in 1933 because it left the people of Germany vulnerable and confused which made Hitlers extreme ideas easier to appeal to. Economically, it left Germanys economy in tatters due to the reparations. Socially, there was the war guilt clause which caused an outrage amongst the German people.

The Rise Of The Nazi Party In Germany


In Germany, Bruning’s decision to call elections to obtain a mandate for his actions proved a grave miscalculation the fall 1930 elections returned only a handful of new seats for the parties supporting the Chancellor, while the extremist parties gained the most seats: twenty-three additional representatives for the Communists on the left and ninety-five new seats for the Nazis on the right, making the latter the second-largest party in the German Reichstag, or Parliament. In the election, more than six million Germans voted for the Nazi party. In subsequent elections, Nazi support continued to grow at the expense of moderate parties such as the Social Democrats and the Catholic Center Party. By 1932, the Nazi Party had won more than one-third of the seats in the Reichstag and had become the largest single party within the representative body, with 196 seats compared to 121 seats held by Social Democrats. While Hitler’s actual accession to power occurred through a process of manipulation among the leaders and not through direct elections, the growing strength of the Nazi party from 1930 to 1932 illustrates how the effects of the Depression shaped the increasing radicalization of German politics in ways that undermined democratic legitimacy and stability.

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The Global Great Depression

The United States was a central part of the international economic system, and its national economic disaster could not be contained. It spread across the globe. It hit particularly hard in Europe where multiple nations were indebted to the United States. During World War I, the Allies had bought a great deal of military weapons and products using loans from the United States. When the United States called for those loans to be repaid to stabilize its own economy, it threw foreign economies into economic depression as well.

In Germany, depression hit in a different but no less powerful way. The new Weimar Republic had weathered a period of intense inflation in the 1920s due to reparations required by the Versailles Treaty. Rather than tax German citizens to pay the reparations, Germany borrowed millions of dollars from the United States and went further into debt. American demands for loan repayment had disastrous repercussions for an already fragile German economy, with banks failing and unemployment rising. As in the United States, the Weimar Republic decided to cut spending rather than increase it to spur the economy, further worsening the situation.

Productivity Or Technology Shock

In the first three decades of the 20th century productivity and economic output surged due in part to electrification, mass production and the increasing motorization of transportation and farm machinery. Electrification and mass production techniques such as Fordism permanently lowered the demand for labor relative to economic output. By the late 1920s the resultant rapid growth in productivity and investment in manufacturing meant there was a considerable excess production capacity.

Sometime after the peak of the business cycle in 1923, more workers were displaced by productivity improvements than growth in the employment market could meet, causing unemployment to slowly rise after 1925. Also, the work week fell slightly in the decade prior to the depression. Wages did not keep up with productivity growth, which led to the problem of underconsumption.

Henry Ford and Edward A. Filene were among prominent businessmen who were concerned with overproduction and underconsumption. Ford doubled wages of his workers in 1914. The over-production problem was also discussed in Congress, with Senator Reed Smoot proposing an import tariff, which became the SmootHawley Tariff Act. The SmootHawley Tariff was enacted in June 1930. The tariff was misguided because the U.S. had been running a trade account surplus during the 1920s.

The depression led to additional large numbers of plant closings.

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People Bought Stocks With Easy Credit

During the 1920s, there was a rapid growth in bank credit and easily acquired loans. People encouraged by the markets stability were unafraid of debt.

The concept of buying on margin allowed ordinary people with little financial acumen to borrow money from their stockbroker and put down as little as 10 percent of the share value.

A similar type of overconfidence was seen in industries such as manufacturing and agriculture: overproduction led to a glut of items including farm crops, steel, durable goods and iron. This meant companies had to purge their supplies at a loss, and share prices suffered.

Hobbling Of A Generation

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The generation that came of age at the worst of the crisis, Millennials still feel the effects of the Great Recession. They have decreased savings and heavy student loan debt. They have a reluctance to buy homes and overall less wealth than previous generations at a comparable age. A 2019 Country Financial survey revealed that half of Millennials rate their level of financial security as fair or poor, compared to 44% of Americans overall.

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Compare Hitler And Machiavelli

This applies to Hitler because he was both feared and loved by many. Germany was not in good shape after WWI and when Hitler came and assured the people recovery, they could not refuse. In the end Hitler brought down the unemployment in Germany from 7 million to only 1 million in 12 months. Hitler knew how he could maintain his leadership, because one thing he knew was that he was feared by his enemies/opponents.

France After The Crash Of ’29

The effects of the Wall Street crash spread across France more gradually. During the first years of the global economic crisis, France was predominantly affected by a decline in international tourism, by decreased demand for French luxury goods, and by the wave of protectionism that cut into all international trade. The contrasting directions pursued by Germany and France led to strikingly different assessments: “Why Germany âTotters,” on the one hand, and “Why France Keeps Prosperous,” on the other. Yet France could not remain invulnerable to the more general European and even global crisis. When conditions did worsen, French society quickly succumbed to the same sense of desperation. The contraction in world trade at the same time the government maintained the high value of the French currency ensured that exports became less competitive in a shrinking world market. The combination in turn caused production decreases and the spread of unemployment. In addition, the French response to the economic crisis was made more difficult by political conflicts between the major parties, which led to a series of short-lived, ineffective governments and, ultimately, the attempted overthrow of the government in February 1934.

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The Wagner Act And Labor Laws

The third phase of the Great Depression was thus drawing to a close. But there was little time to rejoice, for the scene was being set for another collapse in 1937 and a lingering depression that lasted until the day of Pearl Harbor. More than 10 million Americans were unemployed in 1938, and more than 9 million in 1939.

The Wagner Act of July 5, 1935, radically changed American employment and business. It took legal employer-employee disputes over labor contracts out of the courts of law and brought them under a newly created Federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor union sympathizers on the Board further perverted the law that already afforded legal immunities and privileges to labor unions. The U. S. thereby abandoned a great achievement of Western civilization, equality under the law.

The Wagner Act, or National Labor Relations Act , was passed in reaction to the Supreme Courts voidance of NRA and its labor codes. It aimed at crushing all employer resistance to labor unions. Any legal defense from an employer became an “unfair labor practice” punishable by the Board. The law not only obliged employers to deal and bargain with the unions designated as the employees representative later Board decisions also made it unlawful to resist the demands of labor union leaders.

The NLRA enabled unions to extort higher wages from employers than they could have received in the market.

Reasons A Great Depression Could Not Happen Again

According to Bernanke, which factors contributed to the ...

While anything is possible, it’s unlikely to happen again. Central banks around the world, including the Federal Reserve, have learned from the past. There are better safeguards in place to protect against catastrophe, and developments in monetary policy help manage the economy. The Great Recession, for instance, had a significantly smaller impact.

But monetary policy can’t offset fiscal policy. Some argue that the sizes of the U.S. national debt and the current account deficit could trigger an economic crisis. Experts also predict that climate change could cause profound losses.

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A Legacy Of Government Regulation

New Deal legislation also ushered in a new era of government regulations and the underlying concept that even a free-enterprise system can use some federal oversight. Milestone measures include:

  • The Glass-Steagall Act of 1933, which separated investment banking from commercial banking to prevent conflicts of interest and the sort of speculation that led to the 1929 crash
  • The Federal Deposit Insurance Corporation to oversee banks and protect consumer accounts, via FDIC deposit insurance
  • The establishment of the Securities and Exchange Commission to oversee the stock market, create securities legislation, and protect investors from fraudulent practices

“The biggest legacy is a change in the view of government’s responsibilities that it should take an active part in addressing economic and social problems,” says Tomic.

Federal Response To The Great Recession

Decisive action by the Federal Reserve, along with massive government spending, kept the US economy from total collapse.

Aiming to boost borrowing and capital investment, the Fed reduced interest rates to zero for the first time ever and launched a quantitative easing program, whereby it bought financial assets to add more money into the economy.

As for the federal government, it creating two key programs aimed to provide emergency assistance:

  • Troubled Asset Relief Program : This initiative helped stabilize the economy by having the government purchase up to $700 billion in toxic assets, with most of the money used to bail out troubled banks.
  • The American Recovery and Reinvestment Act : A stimulus package enacted in 2009, ARRA implemented a series of tax cuts, government spending mandates, loan guarantees, and unemployment benefits to help kickstart the economy.

These measures were effective, preventing the recession from developing into a decade-long affair, like the Great Depression. The stock market began to rebound in 2009. Still, other aspects of the economy took several years to recover what economists characterize as an L-shaped recovery.

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Signs Of An Upcoming Economic Depression

Before an economic depression happens, there are things that people should take notice of in order to be able to prepare for one. They include the following:

1. Worsening unemployment rate

A worsening unemployment rate is usually a common sign of an impending economic depression. With high jobless numbers, consumers will lose their purchasing power and eventually lower demand.

2. Rising inflation

Inflation can be a good sign that demand is higher due to wage growth and a sturdy workforce. However, too much inflation will discourage people from spending, and it can result in a lowered demand for products and services.

3. Declining property sales

In an ideal economic situation, consumer spending is usually high, including the sale of homes. But when there is an impending economic depression, the sale of homes goes down, signaling falling confidence in the economy.

4. Increasing credit card debt defaults

When credit card usage is high, it is usually a sign that people are spending, which is good for the GDP. However, when debt defaults rise, it could mean that people are losing their ability to pay, which signals an economic depression.

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5 warning signs a Great Depression may be imminent

Some have even argued that the Fed is the reason it became a depression at all, and that had they been more active and aggressive, it could have been held to a recession. The Federal Reserve did not give aid to banks and thousands of smaller ones collapsed, in part because the Fed declined to create more cash as the money supply tightened. This was far different than the Fed of the Roaring Twenties, which increased money supply plenty throughout the decade.

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Loose Lending Standards In The Housing Market

In the decade leading up to 2007, real estate and property values had been rising steadily, encouraging people to invest in property and buy homes.

By early to mid-2000s, the residential housing market was booming. To capitalize on the boom, mortgage lenders rushed to approve as many home loans as they could, including to borrowers with less-than-deal credit.

These risky loans, called subprime mortgages, would later become one of the main causes of the Great Recession.

A subprime mortgage is a type of loan issued to borrowers with low credit ratings. A prospective subprime borrower might have multiple dings on their credit history or dubious streams of income. In fact, the loan verification process was so lax at the time that it drew its own nickname: NINJA loans, which stands for “no income, no job, and no assets.”

Because subprime mortgages were granted to people who previously couldn’t qualify for conventional mortgages, it opened the market to a flood of new homebuyers. Easy housing credit resulted in the higher demand for homes. This contributed to the run-up in housing prices, which led to the rapid formation of the 2000s housing bubble.

In the rush to take advantage of a hot market and low interest rates, many homebuyers took on loans without knowing the risks involved. But the common wisdom held that subprime loans were safe since real estate prices were sure to keep rising.

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