A Perfect
Economic Storm
The
Great Depression, a worldwide economic collapse that began in 1929 and lasted
roughly a decade.
Vulnerabilities in the Global Economy
In the 1920s, nations bounced back
from the disruption and destruction caused by World War I, with factories and
farms producing again, Richardson notes. But the nature of the economy in the
United States and elsewhere shifted, as ordinary consumers buying durable goods
such as appliances and cars—often on credit—became more and more important.
Investors increasingly bought stocks on margin, in which they put down as little as 10 percent of the price of a stock, and borrowed the rest of the money, with their stock itself as collateral. Corporate stocks soared, and brokers made huge commissions.
But the bubble eventually had to burst. It did that on Black Monday, October 28, 1929, when the Dow Jones average declined nearly 13 percent in one day. That started a period of catastrophic declines that destroyed almost half of the Dow’s value in a single month. By 1932, at the nadir of the financial crisis, the nation’s public companies had lost 89 percent of their value.
Blunders by the Fed
The Federal Reserve System, created in 1913, was supposed to ensure the nation’s economic stability by controlling the money supply. But the still-new institution’s policies in the 1920s not only failed to stop the Great Depression, but to cause it. There was a drastic 67 percent increase in the money supply between 1921 and 1929.
But eventually, in 1929, the Fed’s board worried that speculation was out of control, and abruptly slammed on the breaks by contracting the money supply and raising interest rates. The Fed’s move to cool the stock market worked a little too well. “They got the stock market to come down, but then it came down a lot, and it came down very quickly.
After the Wall Street crash, nervous investors began to trade their dollars for gold.
The Fed then moved to jack up interest rates higher to protect the dollar’s value. But those high interest rates made it difficult for businesses to borrow money that they needed to survive, and many ended up closing their doors instead.
The Smoot-Hawley Act
Trade protectionists in Congress enacted the Smoot-Hawley Act, which was written in early 1929, while the economy still seemed to be going strong. But after the Wall Street Crash weakened the economy, President Hoover still signed it into law in 1930. The law raised U.S. tariffs by an average of 16 percent, to shield American factories from competition with foreign countries’ lower-priced goods. But the move backfired when other countries put tariffs on U.S. exports.
In The End
The unlucky thing was that all those factors combined in a sort of perfect economic storm, whose devastating effects had long-lasting repercussions. As Richardson notes, the U.S. economy didn’t again reach full employment until 1940—just in time for World War II
The Great Depression Legacy – The New Deal
The New Deal did more than attempt to stabilize the economy, provide relief to jobless Americans, and create previously unheard-of safety net programs, as well as regulate the private sector. It also reshaped the role of government, with programs that are now part of the fabric of American society.
Enter The Administrative State (aka Communism)
We often think about our government
in many ways. However, with the emergence of the Administrative State, the government
is involved in every part of citizen’s lives:
- U.S. Department of Agriculture
- U.S. Department of Commerce
- U.S. Department of Defense
- U.S. Department of Education
- U.S. Department of Energy
- U.S. Department of Health and Human Services
- U.S. Department of Homeland Security
- U.S. Department of Housing and Urban Development
- U.S. Department of Justice
- U.S. Department of Labor
- U.S. Department of State
- U.S. Department of the Interior
- U.S. Department of the Treasury
- U.S. Department of Transportation
- U.S. Department of Veterans Affairs
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