The Great Depression Research Paper Example | Topics and Well Written Essays - 2500 words

The Great Depression - Research Paper Example It began in the U.S but quickly spread to the entire world. It hit hard on major cities, especially those dependent on heavy industry. It took a toll on prices, tax revenue, personal income and profits. International trade shrunk by over 50% to 75%. Unemployment in the U.S increased to over 25%, while GDP fell by over 36%. Consumption declined and so did the industrial output. Additionally, it had political ramifications. It led to the election of President Roosevelt in U.S and the rise of Hitler’s Nazi regime in Germany. Historians argue that it was one of the major causes of the World War II. Not even Roosevelt’s New Deal could pull the U.S economy out of the depression. Countries began to recover in the mid 1930s. Ironically, the beginning of World War II marked the end of the Great depression. Causes Recessions in a business cycle are normal, and a product of balances between demand and supply. What turned normal events into a recession has been a subject of widespr ead debate. A combination of domestic and international factors was culpable for the great depression: structural weaknesses and individual events. a) Boom to Bust The period following World War I is widely regarded as an era of prosperity for the American people. U.S.A had just emerged as a leading superpower. Business started thriving and the quality of life improved dramatically. There were post war reconstructions and low interest rates which ignited the boom. President Coolidge in his state of the nation address in 1929 noted that the nation had never witnessed better prospects than it did then. Automobiles were growing cheaper and more popular. Stock prices were on an upward trend. In fact, the Dow Jones Industrial Average quadrupled between 1924 and 1927. The market experienced the biggest bullish run ever. Many people thought that this was a permanent phenomenon. Many investors were lured into the stock market, some investing on margin using loans. According to Suddah (2008) , out of every 5 dollars loaned by banks, 2 were spent to buy stock. In essence, there was a huge supply of money, which primarily led to speculative stock prices. Besides stock markets, there was a boom in the real estate sector. There was a surge in the real estate sector particularly because of the low market interest rates. Why did the boom to bust contribute to the depression? Boom and bust is a normal feature of a capitalist economy. It was bound to end. It had been a period excessively easy monetary policy. There was a general absence of proper regulation in the monetary sector. It led to excessive speculation, where investors speculated that the share price would keep the upward trend. As a result of increased demand, the share prices became artificially higher: and did not reflect their real value. The speculative euphoria and the boom psychology created underlying weaknesses and imbalances within the economy. Consequently, the nation was not able to deal with the downward spiral in the economy. b) Stock Market Crash of 1929 The stock market crash is widely regarded as the major cause of the depression. The artificial prices of stocks were finally destroyed. What happened was that when the bull market came to an end, share prices began to fall as from September 3 1929. Speculators began sensing loses to their savings and even homes. On the Black Thursday, there were many people trying to offload their shares. That increased the supply while very few investors were willing to buy.