The Great Depression Essay

1989 words - 8 pages

The beginning of the twenties started out slow with a brief recession but it didn't last long; by the early to mid twenties the economy started growing rapidly. By 1929, the Gross National Product (GNP) - the total value of goods and services produced had risen from $75 billion to $84 billion. Manufacturing output rose by 64% due to the manufacturing of the automobile, construction of new dwellings, and manufacturing of radios (Washburne, 1995). Life was good but would not last too much longer for the U.S. economy would soon be taking an unanticipated turn and enter "The Great Depression" which would last until the onset of World War II. The U.S. economy doubled its industrial production between 1921-1929 and the United States of America welcomed Herbert Hoover in 1929 as President of the United States. The U.S. economy was in a bull market where stocks and bond prices were rising and continued to move forward, people were buying stocks in anticipation of a favorable returns on their investment. By 1927, the price of stocks had been inflated beyond the actual earning power of the corporations. Investors continued to purchase stock on margin (buying with a small down payment and borrowing the rest at high interest rates.) Increasing inflation along with widespread installment buying meant that large numbers of Americans were living beyond their means. Manufacturers were producing too many goods and the American people could not afford to buy them (Washburne, 1995). Stock prices continued to rise until one day in October 1929; stock prices stopped increasing and began to descend drastically. Investors began to panic and started selling their stocks for whatever they could get for it. The market suddenly shifted to a bear market and J.P. Morgan and other financiers bought up stocks to try and stop the panic and keep the market afloat (Schultz, 2000). One Thursday - later known as black Thursday, people saw their life savings disappear before their very eyes as stock prices continued to fall. By the end of the business day, there were 16,410,030 transactions (Washburne, 1995). Between October 29th and November 13th, $30 billion dollars disappeared from the American economy (Schultz, 2000). At first when the stocks started to plummet, Herbert Hoover did very little for he felt that government intervention in business would hurt not only America's economy but the nation's political system as well. He felt that direct federal relief to the unemployed was not necessary and that if everyone worked together American's would solve their own problems (Washburne, 1995). The U.S. economy was entering "The Great Depression" that would last from 1929-1941. A depression is caused when excess capacity is very large. The depression not only hit the U.S. but all industrialized countries of the world; it hit Germany especially hard. The term "depression" was a word that was used by Herbert Hoover to characterize the state of the economy...

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