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Causes And Consequences Of Great Depression
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The Great Depression of the late 1920s and 1930s was the longest and most severe economic depression in modern history. It lasted about 10 years (from the end of 1929 to about 1939) and affected almost every country, which was facing a decline in industrial production and prices (The Great Depression), widespread unemployment, banking panics, and an increase in poverty. . Between 1929 and 1933, homelessness in the United States, the effects of the Depression were severe, industrial production decreased by approximately 47 percent between 1929 and 1933, the gross domestic product (GDP) decreased by 30 percent, unemployment increased by more than 20. percent. By comparison, during the Great Recession of 2007-2009, the second worst recession in US history, GDP fell 4.3% and unemployment fell below 10%.
Economists and historians disagree on the exact cause of the disaster. However, most researchers agree that at least the following four factors play a role.
Stock market crash of 1929. In the 1920s, the US stock market experienced a historic expansion. As stock prices skyrocketed, investing in the stock market was seen as an easy way to make money, and even the poor used their disposable income or mortgaged their homes to pay. buy stock. By the end of the decade, hundreds of millions of shares were on the sidelines, meaning their purchase price was covered by loans that had to be repaid with interest as the stock price rose. When prices began their inevitable decline in October 1929, millions of stockholders panicked and quickly disposed of their stocks, exacerbating the fall and creating more panic. Between September and November, the stock price fell by 33 percent. The result was a deep psychological shock and a loss of confidence in the economy among consumers and businesses. Therefore, spending, especially on durable goods and business capital, was very low, which led to a decrease in industrial production and job losses, which further reduced spending and investment.
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Bank Panics and Shortages Between 1930 and 1932, the United States experienced four major banking panics, in which large numbers of bank customers, fearful of defaulting on their bank loans, attempted to withdraw their savings all at once. Ironically, the result of bank panics is often the creation of a crisis in which panicked customers seek to protect themselves: even the most profitable banks fail in a major panic. In 1933, one-fifth of the banks that existed in 1930 failed, causing the new administration of Franklin D. Roosevelt to declare a four-day “bank” holiday (later extended to three days), when all the banks in the country were closed. Until they prove their stubbornness to government inspectors. The result of widespread bank failures is a reduction in consumer spending and business investment because there are fewer banks to lend to. Because people were hoarding it as cash, there was less money to lend. According to some experts, the problem was exacerbated by the Federal Reserve Bank, which raised interest rates (mostly debt) and deliberately reduced the amount of money received in the belief that this was necessary to maintain the gold standard (see below). The United States and many other countries pegged their currencies to a gold standard. A decrease in money supply lowers prices, which encourages borrowing and investment (because people fear that future wages and profits will not be enough to pay off the debt).
The gold standard. Whatever the effect of the gold standard on money in the United States, it undoubtedly contributed to the spread of Great Britain from the United States to other countries. As the United States shrinks production and lowers prices, it runs a trade surplus with other countries because Americans buy fewer imports, while American exports are cheaper. Such imbalances have led to the flow of gold from overseas to the United States, which threatens to devalue the currencies of countries with low gold reserves. Therefore, the major foreign banks tried to solve the problem of trade imbalance by increasing the interest rate, which reduced the price of goods and prices and increased unemployment in their countries. The effects of the international recession, especially in Europe, were almost as bad as in the United States.
Reduce international debt and financing. In the late 1920s, as the US economy continued to grow, US bank lending to foreign countries slowed slightly due to high US interest rates. This reduction has contributed to the contractionary effect in other creditor countries, notably Germany, Argentina, and Brazil, whose economies went into recession before the start of the Great Recession in the United States. Meanwhile, American agricultural interests, which are suffering from oversupply and increased competition from Europe and other growers, have asked Congress to impose new tariffs on agricultural imports. Congress eventually passed major legislation, the Smoot-Hawley Tariff Act (1930), which imposed heavy tariffs (averaging 20 percent) on many agricultural and industrial products. Naturally, the law led to retaliatory measures from many countries, the main effect of which was to reduce production in many countries and reduce world trade.
Just as there is no general agreement on the causes of the Great Depression, there is no agreement on the origins of the recovery, although, again, many factors clearly played a role. In general, countries that abandoned the gold standard or devalued their currencies or increased their money supply began to recover (Britain abandoned the gold standard in 1931, and the United States depreciated significantly in 1933). Financial expansion through new contract jobs and welfare programs and the increase in defense spending at the beginning of World War II may have contributed to the increase in consumer income and aggregate demand, but the significance of this phenomenon is possible. Discussion between researchers. Many people mistakenly believe that the stock market crash that occurred on Black Tuesday, October 29, 1929, was the same as the Great Depression. In fact, it was one of the main causes of the Great Depression. Two months after the first crash in October, stockholders lost more than $40 billion. Although the stock market began to recover some of its losses, it was not enough in the late 1930s and the United States actually entered the Great Depression. in what is called the Great Depression.
The Great Depression (1929 39)
In the 1930s, more than 9,000 banks failed. Bank deposits are not insured, so when banks fail, people lose their savings. Uncertainty about the economic situation and worries about survival, other banks have been reluctant to extend new loans. This aggravated the situation, resulting in reduced costs.
The stock market collapsed and people from different walks of life stopped buying goods, due to the fear of another economic crisis. This led to a decrease in the number of products produced, which in turn reduced the number of workers. As people lost their jobs and could not pay for goods bought through the rationing system, their goods were confiscated. The goods began to pile up. Unemployment has risen above 25 percent, which indicates a lack of spending to ease the country’s economy.
As businesses began to fail, the government created the Smooth Hawley Tariff in 1930 to protect American companies. It imposed high tariffs on imports, which led to a decline in trade between the United States and foreign countries and economic retaliation.
The drought of 1930 in the Mississippi Valley, although not a direct cause of the Great Depression, was so severe that many people could not pay their taxes or other debts and were forced to sell their farms. with no profit for themselves. This area is nicknamed “Kuran Kura”. It is John Steinbeck’s The Grapes of Wrath. After understanding the factors that led to the economic boom of the 1920s, students will begin to see why the economy collapsed. They continue these observations by explaining the causes and effects of the Great Depression. A T-chart is a good way to organize this information because it provides students with a side-by-side comparison of major depressions and recessions.
The Great Depression
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