The Great Depression – a massive global economic downturn – was the longest and deepest economic depression of the 20th century. The downturn took place from 1929 to 1941, with the specific length of the time varying from nation to nation within this window.
Here we look at the causes and consequences – giving us an idea of just how far markets and economic conditions can turn.
1) Stock Market Crash
The Great Depression began in the United States and was triggered by a huge stock market crash. The market had surged higher and higher through the 1920s – creating a growing bubble as prices and volumes grew at an increasing pace – building on momentum. Many buyers applied leverage and bought on margin – a strategy that only succeeds in bull trends.
The market overheated and crashed monumentally in October 1929 and this caught many traders on the wrong side of the equation. They lost money and were forced to pay up in loss making positions.
Many could not repay the money they had borrowed to invest in the market – creating defaults and eventual stock market capitulation. The sudden collapse of the US stock market took place on October 29th 1929 and is referred to as Black Tuesday. This activity furthermore eventually led to contracted global trade – adding to the spread of depression on an international scale.
2) Financial Sector Failures
The failure of these stock market traders to pay their debts meant that lenders were left without payments due. This default trend then fed through across the financial and banking sector – adding to the depth and length of the depression. Many small banks failed altogether – with overextended customers unable to pay loans.
Further to this, larger banks had made many foreign loans as an outcome of repaying World War I debts and these foreign counter-parties chose to default on their debts when US banks acted to stop lending.
This was especially the case with European nations. As US banks stopped lending to these foreign nations they suffered from lack of access to funding – further entrenching the depression globally. Many US banks were bankrupted, there was a run on deposits and widespread panic that almost led to a banking sector collapse altogether.
3) Government Failure
Action was small, hesitant and slow from the US government, under the Hoover administration, when dealing with the Great Depression. Many economists and historians argue that government leaders failed to take swift and decisive action – which is why the Great Depression became so long and deep.
The Federal Reserve did not act to lend money to banks at low interest rates to keep the economy moving forward – nor did they act to inject funds into the economy through federal funded public projects.
4) Consumption Contraction
As access to liquidity contracted all round and panic engulfed the economy many people in the US fell into poverty. The wealth gap pre-Depression was already large – with 40 percent of US families living at or under the poverty level. These economic conditions exacerbated the depression as the demand for consumer goods and the ability to pay debts fell sharply.
5) Unemployment
Construction and manufacturing were hit hardest by the economic downturn as prices and demand for goods and services plummeted. This impacted jobs significantly – and eventually led to mass lay-offs and soaring unemployment. Unemployment in the US reached 25%. Across major cities the unemployment numbers were so high that thousands of jobless men would be roaming the streets looking for work – with up to 3,000 applicants potentially showing up for one job opening.
Men waiting in line for free soup, coffee, and doughnuts in Chicago, 1931
6) Poverty
The general population had to be supported with bread lines to counter starvation. Over 1 million families lost their houses, leading to the establishment of tented communities and shantytowns – commonly referred to as “Hoovervilles” at the time – to mock President Hoover, whom many blamed for the economically disastrous circumstances.
7) Social Upheaval
In search of better opportunities and jobs, thousands of farmers left their homes in rural areas, especially in areas such as Oklahoma and Arkansas. They predominantly migrated westwards – into states such as California.
However, there were few opportunities and resources to be found – and they were forced to live in squalor, often exploited and forced to work in migrant labourer jobs, such as fruit picking, that paid only enough to barely avoid starvation.
8) Political Unrest
The general American population were confused and angry. This led to increased political unease across the nation and a greater number of political protests.
During the summer of 1932, approximately 20,000 World War I veterans marched on Washington to claim bonusses of 1,000USD that they were promised ahead of the initial scheduled date of 1946.
US Congress refused which led to several thousand members of the group staging a sit-in protest – setting up camp and refusing to leave. President Hoover ordered federal troops, to remove the squatters – they used bayonets and gas bombs and burned down the camp. This altercation but it led to even greater further political unrest against the administration – exacerbating the already strained circumstances.
Sources:
1. http://www.history.com/topics/great-depression
2. https://www.khanacademy.org/humanities/ap-us-history/period-7/apush-great-depression/a/the-great-depression
3. https://www.forbes.com/sites/peterferrara/2013/11/30/the-great-depression-was-ended-by-the-end-of-world-war-ii-not-the-start-of-it/#74baa26757d3
4. https://www.theguardian.com/society/2017/mar/04/crash-1929-wall-street-what-the-great-depression-reveals-about-our-future
