Why the Great Depression was Hard to Cure
THE GREAT DEPRESSION 5
Whythe Great Depression was Hard to Cure
Whythe Great Depression was Hard to Cure
October24th, 1929, better known as ‘black Thursday’ marked the beginningof the Great Depression that lasted for ten years in America. It wasthe deepest economic crisis of the 20th century where the globalgross domestic product (GDP) fell by around fifteen percent. TheGreat Depression was hard to cure because of stock market failure,the collapse of banks, and the gold standard.
Accordingto Brunner (2012), the turning point for the American economy tookplace in June 1929 when the economic activities were on recedingtrend. There were massive unemployment rates and prices felldrastically. The stock market experienced a crash in October whereinvestors sold off their shares for a profit. The sell was at high ofabout 12.9 million to a point most corporations could not pay theirshareholders. The interest rates had gone up, thereby discouragingpeople from borrowing this was an indication that the consumers andinvestors were depressed. Ordinarily, minimal loan means less or noprofit for most business. It was difficult for companies to remainafloat during this time, thus, leading to the closure of most ofthem. In turn, this led to the highest rate of unemploymentexperienced. Most sectors were affected such as the automobile, whichdeclined in sales and the farming sector too deflated. A reduction inthe stock market led to the failure of the U.S. economy, whichsubsequently pulled down other countries’ economies. Overwroughtattempts to boost the economies of other nations through theintroduction of protectionist policies resulted in the crumbling downof the global trade. This made it grueling to cure the GreatDepression or at least manage it.
Theactuality or existence of the gold standard connected economicconditions across different nations, thereby making the GreatDepression a global affair. America had one hundred percent goldstandard for its money meaning all currency was backed by agovernment pledge to redeem it in a specific amount of gold. Duringthis period, even the counties that were not facing the collapse ofbanks and monetary contraction were forced to join the deflationarypolicy because of the high-interest rates. Under the gold standard,the amount of money in circulation depended on the available goldmoney supply was rigid. The standard gold mechanism was stiff becauseeventually, it led to the devaluing of currencies, thus, making iteven harder for the economies to recover. Most financial institutionswere collapsing, and so most countries opted to drop the goldstandard policies to redeem their savings. Some countries had thestandard silver plan that helped them to at least have a stableeconomy, but it did not mean that they escaped the depression. Thestates that had maintained the gold standard faced hurdles inregaining their economic stabilityconsequently, there was adifference in the length and experiences of different nations of thedepression. Due to the drop in the worth of the various currenciesacross the globe, it was hard to cure the vast depression becausethere was no stable trading and exchange in the stock market. Thedecline in international trade, which largely depends on foreigntrade, resulted from the gold standard.
TheGreat Depression steered the fall of most banks, thereby meaningthere was an increase in the inflation rate. Low-interest rates,decrease in shareholders wealth, and the failure to inject liquidityinto the banking system boosted the Great Depression. The crash ofthe stock market combined with that of the banks made it difficult tocure the crisis. The failure of one bank promulgated the subsequentdownfall of the rest because there were no measures taken to pumpliquidity to stabilize the banking sector. Money supply was on adecreasing trend, which led to people hoarding the money they had athand. It was reflected in countries with the gold standard becausedue to hoarding of money the government could not dominate thequantity of money. Less circulation of money within the countriesmeant that borrowing was strained people in business could notaccess loans for investment. Most investors opted to keep their moneyat home over venturing into any business, thereby plunging theeconomy further into depression. A cure seemed impossible becauseconvincing businessmen and women to trust the banks was next toimpossible. The American government was reluctant to deal with thesmall circulation of cash because of the standard gold policy thathad required forty percent backing of Federal Reserve notes issued.As a result, with less money flow, businesses could hardly operate asmore cash was hoarded.
TheGreat Depression of 1929 had an effect globally because the collapseof its economy led to the failure of the rest of the nations. Thecollapse of banks, failure of the stock market and the standard goldpolicy made it hard to cure it. The crushing of the stock marketmeant little trading, thereby affecting the banks and leading totheir collapse. The introduction of the gold standard changed thecurrency values for different nations, hence, resulting in the smallcirculation of cash. Overall, the Great Depression was an economicfailure of all times.
Brunner,K. (Ed.). (2012). Thegreat depression revisited(Vol. 2). Springer Science & Business
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