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Causes of the Great Depression - Essay Example

Summary
The paper "Causes of the Great Depression" shows us that reason for this immense depression is not a single one. Multiple reasons lead the circumstances towards the situation which is currently known as the Great Depression of the USA. It left voluminous upshots on the lives of residents as well…
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Extract of sample "Causes of the Great Depression"

The Great Depression Four underlying causes [Pick the Four underlying causes of the Great Depression In 1929, history observed an economic collapse in USA. It was unlike the prior collapses or economic depressions as it caused much more glitches in the economy of the United States. The reason of this immense depression is not a single one. Multiple reasons lead the circumstances towards the situation which is currently known as the Great Depression of United States. It left voluminous upshots on the lives of residents as well. Following is the list of premier reasons of the great depression: 1929 Stock Market Crash It comes first when the debate on the motives of the Great Depression begins. Wealth was demolished on noticeable level because of share market crash. It is, however, one of the former reasons and cannot be treated as the root cause (Kindleberger, 1986). The stock market crash forced the economy towards sickness. First effect that was observed is stated as the shrinking expenditures on big ticket substances, such as home appliances and luxury items. Deflation and Banking To hold on the regulations of central bank, each bank is required to maintain a certain level of money reserves against the loans a bank makes. It is an implied duty of a bank to maintain money stock or reserves. If a bank fails to maintain the required level of reserves, a situation that follows is known as deflation (Friedman et al, 1965). When deflation increases, the value of money increases and buying power of the people also decreases. Money becomes rare that tends towards overall economic vulnerability which was observed during the period of the Great Depression of 1929. Because of numerous wrong and out of the way decisions, the bank reserves fell fast during the Great Depression. Contrarily the loans borrowing from the contemporaries as well the Federal Reserve Bank became so costly for the borrower agency. It became a real trouble when lenders wanted to lend but no borrower was fulfilling their requirements similar was the case for borrowers. United States Economic Policies Along with Europe The US government introduced Smooth-Hawley tariff in 1930 to relieve the business which was continuously leading towards fall (Duignan, 2010). It was a totally wrong decision of the time because businesses were already on declining stage and the newly introduced tariff was charging a very high tax rates for the running business. That is why it is considered as a strong reason of businesses to be shut down that played a vital role in the Great Depression. The Gold Standard To maintain and preserve the gold standard reserves, Federal Reserve permitted to almost stop the money/ currency supply across the economy. It created the huge sort of deflation which was stated above. Because of stock market crash, international treaties, ill flow of information and sick policies of federal reserves, at last all it was bombed in term of the Great Depression. The situation was out of control and no policy was able to fix the issues. This all lasted till the end of whole decade. Impacts or Consequences on the lives of Residents The most affected group from the Great Depression was general public. They suffered a lot from that economic depression. Living standards of the people were fallen more than a half in just a decade. Unemployment was being detected through early 1930’s because of industries shut down. On a rough estimate, more than 25% of the industrial labor was found unemployed and failed to find the work till the end of 1930. Purchasing power of people was fallen due to deflation. In the beginning, the larger or luxury items were forced to be discontinued. After the passage of time, the situation went so worse that people were barely able to purchase substances to fulfill their routine requirement. All that put a very bad effect on the minds of people. Unemployment was leading towards skilled and expert labor force that was becoming a reason for mental distress in working class. The government expenditures on welfare and development plans were almost discontinued; government jobs and short term contractual openings were also not available. Subsidies and welfare funds by the government were no more in practice. Weakening position of government put a general feeling of disappointment and insecurity was growing day by day. Alike the people who were unemployed, employed people were also insecure of losing the job at any time. They were forced to render the services on half of the wage rates. Benefits and rewards system was not in practice anymore. There was also a quarrel in the labor unions and the top management which was referred to the war of rights. Response of Hoover’s Administration President Hoover took a piece of reforms to reduce the effects of the Great Depression for the welfare of general public mainly. No doubt, the reforms were seemed to be very attractive, but still they were not able to preserve the damages caused by the great depression. Here is an outline of Hoover’s reforms: Charity for the Poor: Keeping in view the sufferings and damages borne by the poor, President Herbert Hoover initiated personal charity to relief the poor people so that they can be provided with the basic necessities at least. Supporting Businesses: Providing the relief for business firms, such that they can resume their activities and can effectively participate in economic recovery process. It was a need of time to resume the people’s living standards by trying to increase the employment. An agency was formed for restoration process known as Reconstruction Finance Corporation. Housing: To relieve the housing facility, an initiative known as Hoovervilles was introduced. Those were shelter sort of houses which were made up of scrap material and were built outside the cities. Relief to Army: “Bonus Army”. The 20,000 veterans of World War I were unemployed during the period of the Great Depression. They were promised by the government that they will be provided with bonus in 1945. As they did not have anything in hand at that time, they demanded for the Bonus on the spot. But their demand could not be fulfilled and it raised a negative impression of the president Hoover. References Duignan, B. (2010). The legislative branch of the federal government: Purpose, process, and people. New York: Britannica Educational Pub., in association with Rosen Educational Services (p. 309). Friedman, M., Schwartz, A. J., & National Bureau of Economic Research. (1965). The great contraction, 1929-1933. Princeton, N.J: Princeton University Press. Kindleberger, C. P. (1986). The world in depression, 1929-1939. Berkeley: University of California Press (p.95). Read More

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