The Great depression of 1929 ~ ecoiq4u

The Great depression of 1929

Summary

It's not a question of enough, pal. It's a zero-sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.

-From the Movie Wall Street (1987)

"The Great Depression" the biggest economic disaster in the modern world. It lasted for ten years from 1929 to 1939. In this article, we will discuss the factors that lead to the biggest recession that the world ever witnessed. The great depression exposed the fragile banking system of the USA, the incompetency in handling the situation, and the pursuit of people of achieving overnight fortune. This incident lay emphasis on the importance of the banking system in an economy if it fails the entire economy suffered huge loses. One of the major takeaways from this crisis is inappropriate to use of credit buying can render you homeless and the entire economy into its knees.

1919-1928, the era of prosperity and how it led to the biggest economic crisis of the world.

1929, the Stock Market Bubble Bursts.

The beginning of the depression

1919 THE ERA OF PROSPERITY

1919, in the aftermath of world war one.USA economy started thriving as rapid electrification, use of technology in the various field made things easier. All the services which were once considered luxury became affordable. More and more people started using flight services and buying brand new cars. Due to the availability of easy credit, the purchasing power of people had increased significantly, the concept of BUY NOW PAY LATER became popular among masses.

To accommodate the war spending the federal government introduced a sovereign bond called the “Liberty Bond”.The government borrowed money from the people and paid them an interest in return. This was the first time people had invested in any kind of bond. The introduction of this bond started an investing culture in America and here comes the wall street in the picture.

The corporate wants to cash in the opportunity, if people buy bonds from the government they would also buy from the corporates and the shares of the company whose product they were using in their everyday life. The stock market that once associated with stigma, that it meant only for the elites suddenly became a reliable and respectable form of investment. People started to trusts the stock exchanges and willing to put their hard-earned money for astronomical returns.

The stock brokerage firms opened their branches all over the USA to take advantage of this euphoria. In the mid-20s nearly three million people made it to the stock market. Magazine and radio started to cover the articles mentioning the fortune made by the investors and their overnight success story. Stocks continuously gave amazing returns and it made people greedy. More and more investors started to buy stocks on margin i.e they borrowed money from the brokerages to buy the stocks to avail the soaring profits.

Now everyone in the society from a bell boy to a barber started to put their money in the stock exchanges. Due to the huge influx of money, the stock became overvalued means more and more customers wanted to pay higher prices for stock irrespective of the real growth and performance of the company.

The women investor also popularized the concept of investing as women also started to invest money in the stock market. As most of these investors are new in the stock market and the only thing they knew was, to get more money you have to put in more money.

The unethical practices like inner trading and price manipulation started by the stock exchange. A nexus of corporates and the government was underway, the government in a way gave its silence approval of the unethical practices that were going on at that time.

1929 the Stock Market Bubble Bursts

The US got a new president Hoover he was well aware of the situation in wall street still he was not capable enough to regulate the market place. A whistle blower Paul Warburg predicted that marketing is going to crash as all the share prices are overvalued. As the common investor were overwhelmed by the unprecedented returns they chose to ignore Paul.

23 October 1929 the share prices began to fall this wrecked havoc among the common investor .24 October 1929, millions of share sold in one day this day is remembered as Black Thursday in the US stock market. People gathered outside the New York stock exchange, they were incomplete disbelieves and unable to figure out what happened. The stock prices had fallen up to 80 percent.

Amidst the chaos in the common investor, the JP Morgan a prominent bank held a meeting with the major brokerage firms and the elite group of investors to restore confidence among the small investors. They decided to inject 250 million dollars in the stock exchange. They bought a list of stocks. This strategy worked but only for a short duration. The prices again started to plunge.

In these five days of treading from 23 up till 28 October of 1929, 25 billion dollars worth of wealth wiped out from the stock exchange. The entire savings and hard-earned money of common people gone in a moment.The investor who bought stocks in credit left with nothing to repay the loan. People started committing suicide by jumping from the buildings of the New York stock exchange. Due to a severe shortage of money in the banking system, 2000 banks in the USA had closed their operation. People lost their faith in the fragile banking system and reluctant to keep their money with the banks this led to further worsening of the situation.

1929 the beginning of the great depression

The liquidity crisis and closing of the bank initiate a vicious cycle that leads to a domino effect. Companies which were still solvent unable to get loans from the banks and hence unable to pay salary to the worker and unable to maintain inventory. Due to this company starting laying off the employee. Many firms had gone bankrupt and unemployment was rampant and spread like wildfire. Due to the nonavailability of job people started to cut down their expenses, this leads to a decrease in the demand ultimately closing down the business.

Poverty can be witnessed in the streets of NewYork, people were forced to sleep in cardboards some were found living in central park by vacating some space. People did not have money to buy food, nor did they have clothes, people wrapped themselves with newspapers. Riches to Rags would be the perfect narration of the mayhem.

Then came Mr. Franklin Rosevelt the new Democratic President. He tried to restore the faith of people in the financial system of the country. He announced that the Government will regulate the financial market place and took the guarantee of depositors’ money if they are willing to keep their wealth in banks. Banks were taken under the supervision of the government to check any irregularities.

A committee probed the market crash and put the responsible person behind the bars. The government established a security and exchange board to clean up the mess in the wall street. Despite all these steps thinks did not go back to normal and the depression continue. Globalize economies like the UK and Germany were also some majorly affected countries due to this depression.

.The Great depression strengthens the anti-capitalist power. Communist and fascist leaders like Hitler in Germany and Mussolini in Italy took the lead. Countries put barriers on free international trade to prevent their economy from the crash, it later leads to trade war among the countries and it paves the way for world war II in 1939.