The Great Depression plunged the American people into an economic crisis and for more than a decade neither the free market nor the federal government was able to restore prosperity. The worst and longest downturn in economic history threw millions of hardworking individuals into poverty.
The first thing President Roosevelt did was to declare a national bank holiday so that banks could reopen on more stable footing. He argued that restructuring of the economy would be needed to prevent another depression or avoid prolonging the current one.
The New Deal programs sought to stimulate demand and provide work and relief for the impoverished through increased government spending and the institution of financial reforms. The Securities Act of 1933 comprehensively regulated the securities industry and was followed by the Securities Exchange Act of 1934 which created the Securities and Exchange Commission. The Emergency Banking Relief Act also gave the president control over exchange rates and all banking transactions.
Failed banks, unemployment rate and the recovery
The Glass-Steagall Banking Reform Act created the Federal Deposit Insurance Corporation to insure individual deposits with government money. The FDIC helped restore the public's confidence in banks, as many people had lost their savings when banks failed after the stock market crash of 1929. After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. It is estimated that a total of 9,000 banks failed during the 1930s. In 1933 unemployment rate reached as high as 25%, which became the most important national issue.
Drought persisted in the agricultural heartland, creating the phenomenon known as the Dust Bowl. By 1935, the Second New Deal included the program for Social Security and a jobs program for the unemployed called the Works Progress Administration. Through the National Labor Relations Board it added a strong stimulus to the development of labor unions.
By 1936, the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high at 11%. The economy seemed to have recovered, but daily life for most of the people was still a struggle. In 1937, the Roosevelt administration cut spending and increased taxation in an attempt to balance the federal budget. The United States economy reacted with a sharp downturn, lasting for 13 months through most of 1938. During the recovery further expansion of the New Deal stopped. When unemployment dropped to 2% most of the relief programs were abolished. People of the time considered President Roosevelt a hero. It was ultimately the entrance of the United States into World War II that ended the Great Depression in the economy.
The worldwide effects of Great Depression
The Great Depression became a worldwide crisis and affected almost all nations. Sharp decrease in world trade occurred, as each country tried to protect their own industries and products by raising tariffs on imported goods. Some nations changed their leader and their type of government. Australia's extreme dependence on agricultural and industrial exports meant it was one of the hardest-hit countries in the Western world. Falling export demand and commodity prices placed massive downward pressures on wages. Unemployment reached a record high of 29% in 1932, with incidents of civil unrest becoming common throughout the country.
Canada was heavily affected by the global economic downturn and the Dust Bowl, crippling the industrial production to only 58% of the 1929 level by 1932. Unemployment also reached 27% at the depth of the Depression in 1933. In Germany, poor economic conditions led to political changes. The unemployment rate reached nearly 30% in 1932, leaving a lot of desperate people on the streets. Some turned to extremist policies which promised growth at any cost, leading to the rise to power of the dictator Adolf Hitler.
The Great Depression did not strongly affect Japan, as the economy shrank by 8%. In normal conditions that would be considered a disaster, but in regard to the world crisis it was actually quite mild. Japan implemented two major economy changes which involved a large fiscal stimulus through deficit spending and devaluing the currency to make the economy more competitive. Bank of Japan was used to sterilize the deficit spending and minimize resulting inflationary pressures. It should be noted that the Japanese invaded China at the time, developing industries and mines in Manchuria.
United Kingdom faced a series of hunger marches in the 1930s. The effects of the crisis on the northern industrial areas of Britain were immediate and devastating, as demand for traditional industrial products collapsed. By the end of 1930 unemployment had more than doubled from 1 million to 2.5 million and exports had fallen in value by 50%.
The common view among economic historians is that the worldwide Great Depression ended with the advent of World War II. The massive rearmament policies helped stimulate the economies of Europe or have at least accelerated the recovery. There is still an ongoing debate between different schools of economics which were the actual reasons behind the crisis and which should have been the appropriate government responses. Regardless to the economic approach, the Great Depression remains a valuable history lesson for all who wish to study the nature of economics.