The Collapse of the Financial System - Essay Sample

Introduction

The Great Depression of the 1920s and 30s has remained to be the longest and most severe economic downturn in modern history. Although it is attributed to various causes, the collapse of the financial system is seen as the most significant cause. During the 1920s, the US stock market experienced a historic expansion which made the stock prices to rise to unprecedented levels. Through this, many people including low-income earners used a lot of their disposable income to buy stock. Towards the end of the 1920s, most people were financed by loans which were repaid with interest. In this regard, the price decline starting 1929 saw a lot of panics which led to liquidation rush. As a result, consumer spending significantly fell which reduced the industrial output as well as job losses further reducing spending and investments hence facilitating the depression.

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Monetary Contraction

Monetary contraction also facilitated the Great Depression between 1930 and 1932. During this period, the US faced extended banking panics. With the customers fearful of their bank's solvency, they withdrew huge sums in cash to protect themselves from a possible collapse. By 1933, about 20% of the banks failed which led to the "bank holiday." However, this resulted in a few banks for lending hence a decrease in consumer spending and business investments. Besides, many people were holding their money in cash form hence there were even fewer banks which would lend money that would be used in business investments. The low rate of money supply further reduced prices thereby reducing investments and discouraging investments further.

Declining Consumer Demand

Following the stock market failure as well as the increasing fears of further economic woes, people of all classes stopped purchasing items. Besides, the US was experiencing a decline in output and deflation that led to a trade surplus with other nations. It should be noted that Americans exports were relatively cheap in the market and with the reduced consumer demand, Americans were buying fewer imported products. The reduced demand led to a reduction in production and hence a reduction in the workforce. A lot of people lost their jobs making lending firms to repossess various items that were being facilitated by hire purchase. As the unemployment rate increased, even further less spending was encouraged with the aim of alleviating the economic challenge.

Industrial Response

The imbalances caused by the financial crisis created a critical situation that threatened to devalue the currencies of the countries that had the gold reserves depleted. Besides, the imposition of the Smoot-Hawley Tariff Act (1930) that brought about steep tariffs on various agricultural and industrial goods significantly impacted on the ability of industrial production. Considering the loss of consumer demand, many industries closed which further reduced industrial output and thus causing a global trade contract.

What Economic and Social Consequences Did the Great Depression Create?

Statistics (farmers and homebuyers)

The Great Depression significantly devastated the US economy with unemployment rising to about 25%. Due to reduced monetary gains, homelessness increased and the housing prices plummeted by 30%. During the period, the prices fell by about 10% annually. Farmers in the US struggled with low prices while they struggled to produce massive outputs. When the prices fell, the farmers tried even to produce more products to pay their debts, living expenses, and taxes. However, little returns made more farmers go bankrupt and lose their farms. Despite the efforts made by farmers to approach the government and even form labor unions, the results were futile leading to more misery of the population.

Women (unemployment and contraception)

The Great Depression affected different gender differently. During the period, the economic downfall affected mainly masculine jobs while the feminine jobs, especially in the service industry, tended to continue. Women were mainly engaged in clerical jobs, teachers, and nurses who were still critical during this period. In this regard, the women's wages remained critical towards the survival of the family. Due to the economic challenges, married couples opted for a smaller family that they could rare. This resulted in a dramatic increase in birth control for women to size down families. Despite the laws that prohibited information on birth control there was an increase in magazines that contained critical information on birth controls and were subsequently embraced.

African Americans (unemployment, voting, and great migration)

The Great Depression made the already bad economic situation of the African Americans worse. Due to the discrimination that persisted in the society during this period, the blacks were the first to be laid off their jobs hence suffering unemployment challenges twice or thrice the whites. Various organizations excluded the blacks from charitable jobs which facilitated further economic predicaments. On the other hand, the intensified economic plight sparked significant political developments among blacks. The blacks had started to drift towards the Democratic Party and voted in large numbers for the party's candidates. President Roosevelt also strengthened black support through the New Reform by appointing many of them as cabinet advisors. This together with the economic and social challenges in the South led to massive movements of blacks to the urban centers. In this regard, the Depression led to both negative consequences and positive impacts on African Americans.

Immigration

During the Great Depression, many people migrated to different areas for different social, economic, and political reasons. The blacks migrated from the rural South to the urban North. Due to the migration, there was a serious housing shortage as well as job competition that led to increased tension between the whites and blacks. Further migration was led by the environmental catastrophe of the agricultural crisis due to severe drought and low purchasing power. Immigration was also taking place in Europe as consequences hit Europe by a storm. However, the immigrants from Europe declined following the harsh economic challenges in the US.

Dust Bowl Migration

Dust Bowl refers to a period of severe dust storms that significantly damaged ecology and agriculture of the American as well as the Canadian prairies. As the high winds, as well as chocking dust, swept the areas of Texas to Nebraska, many people and livestock were killed. In retaliation, many families were pushed to desperate migration to search for work and even better-living conditions. Some sold their property as they realized the dust storm may not end quickly and started migrating through Route 66 to California with the hope of employment in California horticultural farms.

How Did F.D.R and the New Dealers Attempt To Bring About Recovery?

FDR and the new dealers as established by President Franklin Roosevelt buoyed the nation's hope of recovery which was championed by the president through a series of legislations. It should be noted that the recovery by the FDR was meant to take time hence there was a need to put people to work. The president did so and put people into productive tasks like the building of the park facilities and other construction works. The FDR and new dealers hoped that by ensuring a working society, they would avert the economic and social challenges that had been brought by the Great Depression. Through the leadership of the President, the new dealers believed that a recovery would be achieved by empowering the forgotten people at the bottom to climb the economic pyramid. This called for championing of the federal legislation to create a favorable environment for the recovery activities that were of much necessity. Public Works Projects such as the Works Progress Administration would offer a much-needed boost towards economic needs. Partial recovery would, therefore, be achieved through pump priming as propagated by the new dealers.

Were There Efforts Successful?

Although the efforts by the FDR and the new dealers faced immense challenges, they were significantly successful in facilitating developments, especially in the marginalized areas. Various developments were achieved by the New Deal which means that the efforts of the people championing the progress were largely successful. It should be pointed out that the New Dealers encountered numerous ordeals during the period due to the high rates of unemployment, poverty, and diseases among the American population. In this regard, the new dealers understood the urgency that was necessitated by the economic challenges to address the situation. Through their efforts, they succeeded significantly to create a relief to the economic recovery through structural reforms.

Enduring Achievements of the New Deal?

The New Deal received numerous criticisms especially by the Republicans who argued that it was very expensive hence a waste of the taxpayer's money. Supporters of Huey Long thought the New Deal was only used to redistribute wealth from the rich to the poor. Despite the criticisms, the New Deal succeeded immensely in promoting better lives in the rural areas. It should be noted that the period had experienced immense challenges for the black people who mainly occupied the rural areas in the South. However, the set of legislations improved some social and economic conditions in the rural areas that played a key role in improving the overall life of the American people. For example, Roosevelt ensured more electricity connectivity in the rural areas, an achievement which was facilitated by the new deal policies. Besides, the stabilization of the economy was imperative to the improvement of the economic predicaments of the Great Depression.

Roosevelt ensured stabilization of the economy that had already experienced immense downfall. The New Deal facilitated numerous Federal regulations regarding the stock market. Considering that many people worried about new investments, the new policies would facilitate a regulation of the stock market leading to economic stabilization. Also, the policies were crucial in the banking sector that faced serious monetary contraction. Due to the new policies, the banks were ensured of the insuring deposits which facilitated the recovery of the banking sector. Also, people were economically supported to buy new homes through insuring of home loans. The New Deal also created Security Net which facilitated retirement pensions, aids to the dependent children and disabled, and insurance for the unemployed. In this regard, the New Deal provided a platform for boosting the economic situation of the significantly economically hit population. Unionization of workers established through the deal also ensured that termination was procedural hence limiting job losses that had taken place during the depression. In essence, the New Deal was largely successful in dealing with the economic challenges of the Great Depression.