History Critical thinking
The causes of, and catalysts that signaled Great Depression
In the 1920s, Americans enjoyed a long period of prosperity and happiness due to the existent expansion in the economy. They adjusted to a new lifestyle and found amusement in entertainment. Historians call this period (1919-1929) a Jazz age due to the massive production and consumption of goods, services, and entertainment (music and films). At this time, President Hoover had just been inaugurated and assured people that they were to continue enjoying prosperity. With such a promise, even the great American economists and investors in Wall Street did not know that the worst time in the US economic history was approaching as an economic depression (Corbett et al. 721). In this study, the focus is on the great depression (1929) and its causative factors. Although unseen, the Great depression was signaled by a series of events such as a decline in value of stock exchange traders, but the trance state induced to Americans during the previous Jazz period could not help counter it.
One cause of the decline was the market crash of 1929, during when Americans lost a lot of wealth. According to Corbett et al. (729), the stock market value fell from $64 billion to about $30 billion in less than two months. In a panic, people, as well as the banks, continued to sell their stock. Worse, banks started demanding payment from individuals and businesses they had given loans upon seeing the situation was deteriorating.
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Some, unable to pay, lost their stock to the bank thus impoverishing households further.
Malpractices in the US banking system is another major cause of America’s economic decline in 1929. Historians explain that during all this time, US banks never insured their deposits and this had adverse effects when the crash occurred. People and businesses ended up losing their money. To avoid such as loss, many Americans rushed to withdraw their money forcing (bank run) further collapsing the banking system.
Another cause of the depression was the US economic policies with other countries, especially Europe. Corbett et al (730) reveal that during the World War I, American banks had given large loans to the Allies to facilitate their win in war. Unfortunately, for the US, the economies of these countries were underperforming, leading to all of these countries defaulting. Some reached the US banks and obtained private loans so that they can pay the first loan. In essence, the act of borrowing one loan to repay another in the same countries left the US without money, and when the crash occurred, the economy nose-dived further.
Among the citizens, there were other factors believed to have caused the depression. These include the drought of 1930 that left farmers in debts and without food, unequal employment and distribution of wealth, and the public panic when the crash occurred. Also, the happy life in the previous Jazz period gave people empty home that they were to continue enjoying prosperity.
Although the 1920s had put the US citizens in a euphoric mood of celebration, and many did not see the coming of depression, there were some events that occurred as signals of the hard times ahead. According to Corbett et al. (726), there was a short decline in stock value on September 18 that to those who were keen symbolized an end to the high value of stock in the market. This brief depression was followed by loss of value by 11 percent in the New York Stock Exchange on 24th October (Black Thursday), and this could have confirmed that indeed, a big problem is on the way (Corbett et al. 728). Another event was the conspiracy by US leading banks to buy large stock volume to manipulate the prices. Finally, the London Stock Exchange had experienced a fall in the value of their shares and this, together with that of NYSE could have given a significant warning to traders.
In brief, the great depression followed a moment of prosperity in the US. For this reason, people were unaware when depression occurred, and this caused a massive panic that further accelerated the decline. The identified factors for the depression includes faulty banking system, international economic problems, and clash in Wall-Street stock market. Before it happened, several events of decline in stock value occurred signaling a possible depression, but they went unnoticed until when it was too late. Furthermore, the then President Hoover has assured Americans that a similar stage as the previous was coming their way.
Corbett, P, S, Volker Janssen, John M. Lund, Todd J. Pfannenstiel, and Paul S. Vickery. Us History. , 2017. Print.
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