Tuesday, June 14, 2011

The Great Depression

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The Great Depression

In the 1930’s, The Unites States suffered an economic collapse known as The Great Depression, a depression that lasted from 1930 to 1941. In the years of the Great Depression, millions of Americans suffered from cold, hunger, and lack of work. Other effects of the Great Depression were bank failures, farm crisis, and mortgage foreclosures.

On Wednesday, October, 1 stock prices dropped and investors lost about $5 billion. On the next day, October 4, known as Black Thursday, prices went even lower. Everyone tried to sell their stocks and get out the market, afraid that within days their holdings would be worthless. On Tuesday of the next week more shares were traded than ever before in the history of exchange. Losses for the day were between $6 billion and $ 7 billion. During this time millionaires saw their fortunes disappear. Ordinary people had gambled their saving and lost their security for the future.

The most important reason behind the Crash was overspeculation. Prices had risen above the stocks’ actual value. The government did not try to stop Brokers who used financial practices that were unsound such as, margin buying. By using margin buying people were able to invest money that they did not really have. As a result, demand for stocks rose and so did stock prices. The Federal Reserve Board also helped cause the crisis. During the 1930s, the Federal Reserve had tried to promote economic growth by lowering the interest rates it charged member banks. In turn, these banks lowered the interest rates they charged individual customers. This money was not used for things like housing construction and new industrial machinery. Instead, it went into get rich quick schemes, especially in the stock market. When the prices began to fall in New York, Brokers and investors panicked selling all their stocks before prices fell even further. This worsened the situation, lower stocks fell and more people wanted to unload the stocks they still had. Then the nation found itself in the Great Depression or the period of severe economic hardship lasting from 1930 until World War II.

An unequal distribution of wealth was a problem faced by the nation. Too many people in the United States had only a little money, and few had a lot. Not enough of the national income went to farmers and workers, who would have bought consumer goods and kept the money in circulation. Ever since the war days of 1918, farmers had suffered from low prices and overproduction. During the depression conditions worsened as countless mortgages were foreclosed, as corn was burned for fuel, and farmers tried to prevent shipment of crops to glutted markets. The Agricultural Adjustment Administration (AAA) was an approach for farm recovery. It began after much of the cotton crop for 1 had been planted. The AAA was supposed to eliminate price depressing surpluses by paying growers to reduce their crop acreage. Paying the farmers not to farm increased unemployment, at a time when other New Deal agencies were striving to decrease it. This created more chaos for the farmers who had been through enough already. The Agricultural Adjustment Administration was finally killed by the Supreme Court in 1936. The new Deal Congress then passed the Soil Conservation and domestic Allotment Act of 1936. This act paid farmers to plant soil conserving crops, like soybeans, or to let their land lie fallow.

Meanwhile a whole chaos was occurring. Late in 1940, black dust clouds rolled across the southern Great Plains creating a Dust Bowl. The soil was worn out by over intensive farming, the prairie of Oklahoma, Arkansas, northern Texas, and western Missouri was the affected area known as the dust bowl. The land offered up neither crops nor livelihood to the people. The drought turned the rich topsoil into dry dust and made it impossible to grow anything valuable. Farmers who tried to plant new seeds could not keep them in the ground because strong winds often blew away. The black dust blew hundreds of thousands of people out of the Dust Bowl forever. The farmers headed mainly for jobs in California, most went in their own autos, cramping all their possessions into old jalopies.

Zealous New Dealers became sympathetic toward the farmers. The Frazier-Lemke Farm Bankruptcy Act made possible a suspension of mortgage foreclosures for five years, but it was voided the next year by the Supreme Court. Farmers were finally helped in 1935 when the president set up the Resettlement Administration. The task was to remove near farm less farmers to better land. And more than 100 million young trees were successfully planted on the bare prairies as windbreaks by young men of the Civilian Conservation Corps. Farmers finally had a relief in which they were given a second chance.

During the Great Depression, people who had no relatives to turn to could not even find decent shelter when they were out of work. Some slept in large buildings run by cities or by private charities that provide a bed at night for the homeless people. Other people who lost their homes moved into shacks without heat or running water. Every large city had a dozen or more Hoovervilles. Hoovervilles were shantytowns patched together out of old crates and cartons, where homeless people lived. They were named after Hoover because people did not believe that he was doing enough to help the poor and fight the Depression. About one million Americans lived in Hoovervilles.

Meanwhile, the baking system was too vulnerable. Many banks were poorly managed, and there was little government regulation. Bank failures became common during the 1940s. Five thousand banks failed and nine million people lost their savings accounts during the first there years of the Depression. Some of these bank failures were the result of the Crash, since banks had made loans to investors who could not repay them after stocks fell. Some were the results of panics, as people who feared a failure rushed to withdraw their savings while they still had the chance. Even well managed banks were forced to shut down when all their depositors demanded their money at the same time.

When Roosevelt became president his first challenge was the bank crisis. The nation’s entire banking system was near collapse. Roosevelt’s first official act was to declare a holiday for every bank in the nation beginning Monday, March 6. This reassured people that open banks could be trusted and keep them from withdrawing their money of panic. Roosevelt used radio talks to discuss the banking crisis. Roosevelt’s speech worked. When the banks reopened, millions of Americans lined up to redeposit the money they had been hoarding. The banks were back in business!

To prevent future crashes and to restore people’s faith in the banking system, Congress passed the Glass-Steagall Banking Act on June 16. This act made it illegal for banks to speculate in the stock market with depositors’ funds.

The Great Depression sent shockwaves throughout the world. European nations had especially close economic links to the United States. When American banks no longer had money to lend them, European nations suffered. Many of them were already collapsing. Tariffs were passed to reduce European imports by making imported goods more expensive. European nations got even by raising their own tariffs. This hurt the United States exports and brought international trade to a virtual standstill. Much of Europe entered a cycle of poverty and political instability because of the Great Depression in the United States.

Finally the New Deal was Roosevelt’s program to end the Great Depression. What emerged was the “three R’s”, relief, recovery, reform. Relief programs were used to ease the suffering of the needy, recovery programs to lay the foundation for the economic growth, and reforms programs to help prevent future economic crisis. Relief efforts of the early 1940’s used government money to fund projects that performed useful work. The first work relief program Roosevelt organized was the Civilian Conservation Corps. By August 1 more than 100,000 young men between the ages of 18 and 25 were at work planting trees, setting up firebreaks, and building dams to stop soil erosion. Another relief program was the Federal Emergency Relief Administration. Congress set aside $500 million for FERA to hand out in direct relief to states, cities, and towns. Other relief programs such as the Civil Works Administration were designed to pump more money into the economy as well as aid people. The New Deal also reformed the stock market. The Securities Act required all firms that issued stock to provide investors with accurate information about their finances. Congress also created the Securities and Exchange commission. Its five members monitored corporations to make sure they provided proper information to investors.

The Great Depression was an immense occurrence in the United States. President Roosevelt’s efforts lifted the nation out of the Great Depression. Now this country stands high and proud thanx to the past hardships.

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