How did the great depression have a major impact on the US?

Answer 1

For better knowledge you also need to know what happened to lead up to the Great Depression:

Great Depression in the U.S.

The Great Depression was a period where economic activity became stagnant and reached an all-time low in many countries around the world. The effects of the 1929 stock market crash that ensued throughout the United States' Great Depression continued from the beginning of 1930 towards the end of the decade.

Causes

Scholars have differing opinions on the exact causes and the relative importance of them. Closely connected to the search for causes is the question of how to avoid future depressions, so the policy and political viewpoints of scholars are intermingled with the analysis of historic events of over 80 years ago. Current theories can be classified into two main schools of thought. First, there is Keynesian, orthodox classical economics, Austrian Economics, monetarist, and neoclassical economic theory, which focuses on macroeconomic effects of money supply, such as consumption and production. Secondly, there are structural theories including those of institutional economics, that point to overinvestment (economic bubble) and underconsumption, or to malfeasance by industrialists and bankers.

There are multiple issues to consider: what set off the initial downturn in 1929, what were structural weaknesses and the specific events that turned it into a major depression, and how did the downturn spread from one country to another. In terms of the small downturn in 1929, historians emphasize the stock market crash and structural factors, while economists such as Barry Eichengreen & Peter Temin emphasize Britain's decision to return to the Gold Standard at pre-WWI parities ($4.86 per Pound). Despite the belief of some that the 1929 Wall Street Crash was the proximate cause that triggered the Great Depression, there are deeper causes that serve as an explanation for the crisis. The vast economic cost of World War I impaired the world's ability to effectively respond to a major crisis.

Economists disagree over how much weight to give the October 1929 stock market crash. Milton Friedman states "the stock market (crash) in 1929 played a role in the initial depression." It definitely changed expectations of and sentiment about the future, shifting the outlook to negative where it was previously very positive, with a dampening effect on entrepreneurship and investment. The market didn't recover in the long run; it almost continuously declined until 1933. By any measure, this produced the greatest long-term market decline and erased billions of dollars in assets.

Macroeconomists such as Ben Bernanke, the current chairman of the US Federal Reserve, have revived the debt-deflation view of the Great Depression that was originated by Irving Fisher and Arthur Cecil Pigou. During the 1920s, the widespread use of home mortgage and credit purchases of automobiles and furniture in the U.S. boosted spending but also created consumer debt. People who were deeply in debt when price deflation occurred were in serious trouble, even if they kept their jobs, and were at risk of default. They drastically cut their current spending to pay loans on time, thus lowering demand for new products. Additionally, the debts grew because prices and incomes fell between 20% and 50%, while the debts remained at the same dollar amount. With future profits looking bleak, capital investment slowed or ceased altogether. Facing bad loans and worsening future prospects, banks became more conservative in their lending practices. They built up capital reserves, which served to intensify the deflationary pressures. A vicious cycle developed and the downward spiral accelerated. This process likely turned the 1930 recession into the depression of 1933.

Many economists argued at the time that a sharp decline in international trade following 1930 helped worsen the depression, especially for countries that were dependent on foreign trade. A majority of economists and historians assess part of the blame to the American Smoot-Hawley Tariff Act of 1930 for worsening the depression by reducing international trade which caused retaliation. Foreign trade was a minor component of overall economic activity in the US; it played a much bigger role in most other countries. The average ad valorem rate of duties on imports subject to duty between 1921 and 1925 was 25.9%. Under the new tariff it jumped to 50% from 1931 to 1935!

In dollar terms, American exports declined from about $5.2 billion US in 1929 to $1.7 billion US in 1933; however prices also fell, so the physical volume of exports only decreased by half. Farm commodities such as wheat, cotton, tobacco, and lumber were hit hardest. This theory purports that the collapse of farm exports caused many US farmers to default on their loans which lead to bank runs on small rural banks that was prevalent during the early years of the Great Depression.

Monetarists, such as Ben Bernanke and Milton Friedman, stress the negative role of the American Federal Reserve System which turned a small depression into a large one by cutting the supply of money by a third from 1930 to 1931. With significantly less money to go around, businessmen were unable to get new loans and could not even renew their old loans. Many were forced to stop investing. This theory blames the Federal Reserve, especially the New York branch. The New York branch was owned and controlled by Wall Street bankers. The Federal Reserve was not controlled by President Herbert Hoover or the US Treasury. Instead, it was primarily controlled by member banks and businessmen. It was these groups that the Fed listened to most attentively regarding policy decisions.

In Milton Friedman's work "A Monetary History of the United States" he wrote that the downward turn in the economy, starting with the stock market crash, could have been just another recession. In general terms, he declares the problem was that some very large, very public bank failures (the Bank of the United States in particular) produced widespread runs on banks while the Federal Reserve sat idly by as bank after bank failed. He believes that if the Federal Reserve had taken action by providing emergency loans to these key banks, or simply bought government bonds on the open market which would have provided liquidity, and increase the money supply after the key banks failed, the rest of the banks that subsequently failed would not have. The money supply would not have been reduced to the extent it was, and would not have been reduced so quickly.

The revolutionary left viewed the Great Depression as the beginning of the final collapse of capitalism. The idea mobilized the far left to action. However, they failed to gain power in any major country during the period from 1929 to 1932.

Roosevelt primarily blamed big business and its excesses for causing the unstable, bubble-like economy. He believed business had too much power and the New Deal intended to remedy that through the empowerment of labor unions and farmers and by raising taxes on corporate profits. The New Deal was successful in empowering the unions and farmers but not so in regards to hiking taxes on corporations. Regulation of the economy was frequently tried as a remedy. Most New Deal regulations were scaled back or abolished from 1975 to 1985 in a bi-partisan wave of deregulation. However, the SEC, which regulates Wall Street, garnered widespread support and continues to do so to this day.

The British economist John Maynard Keynes argued that lower aggregate expenditures in the economy helped caused a multiple decline in income, well below the level of full employment. In this situation, the economy may reach a perfect balance, but at the cost of high unemployment. Keynesian economists increasingly called for government to pick up the slack by increasing government spending.

Responses

Secretary of the Treasury Andrew Mellon advised President Herbert Hoover that a shock treatment was the best response: Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate... will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people (Hoover Memoirs)

Hoover rejected the advice, and made Mellon an ambassador. Hoover didn't believe the government should directly aid the people. He instead insisted on "voluntary cooperation" between government and business. He believed that the crash of the stock market was a regular hiccup in the cycle of capitalism, and that it need not affect the greater economy. Hoover implored large business leaders to voluntarily "take a hit" for the greater good of the nation. Business leaders initially agreed. However, in practice no business wanted to put their neck out, risking complete failure for the good of the economy.

Hoover also promoted a central bank - led by business instead of the government like the eventual FDIC - that would store money in reserve as security against bank runs. Again, business agreed that it was a good idea, but they were not capable of coordinating such an organization on their own. Hoover's idea of "voluntary cooperation" failed, but his policies during his tenure proved that the government must take an active role in the economy if the country was to recover from the depression.

New Deal From 1932

Onward Roosevelt argued that a restructuring of the economy, a "reform," would be needed to prevent another depression. New Deal programs sought to stimulate demand and provide relief and work for the impoverished through increased government spending, by reforming the financial system, especially Wall Street and the banks. The Securities Act of 1933 regulated the securities industry comprehensively. This was followed by the Securities Exchange Act of 1934 which created the SEC. (Though amended, the key provisions of both Acts are still in force as of 2007). Federal insurance of bank deposits was provided by the FDIC (still operating as of 2007), and the Glass-Steagal Act (which remained in effect for 50 years) instituted regulations which ended what was termed "cut-throat competition" which kept forcing down prices and profits for businesses, setting minimum prices and wages and competitive conditions in all industries, encouraging unions that would raise wages, to increase the purchasing power of the working class, cutting farm production in an aim to raise prices and make it possible to earn a living from farming (done by the AAA and successive farm programs).

The most controversial of the New Deal agencies was the National Recovery Administration (NRA) which ordered businesses to work with the government to set price codes; the NRA board to set labor codes and standards. These reforms (together with recovery and relief measures) are called the First New Deal by historians. It was centered around the use of agencies sporting various combinations of initials, set up in 1933 and 1934, along with the use of previous agencies such as the Reconstruction Finance Corporation, to stimulate and regulate the economy. By 1935, the "Second New Deal" added Social Security, a national relief agency, the Works Progress Administration (WPA), and a strong stimulus to the growth of labor unions through the National Labor Relations Board. Unemployment decreased by 2/3 in Roosevelt's first term (from 25% to 9%), but then remained stubbornly high until 1942.

In 1929, federal expenditures made up only 3% of the GDP. Between 1933 and 1939, federal expenditures tripled, funded primarily through growth in the national debt. The debt, as a proportion of the Gross National Product (GNP) rose under Hoover's administration from 20% to 40%. Roosevelt kept it at tje 40% level until the war began, when it skyrocketed to 128%. After the Recession of 1937, conservatives formed a bi-partisan Conservative coalition that halted further expansion of the New Deal, and, by 1943, abolished all of the relief programs.

Recession of 1937

In 1937, the US economy took an unexpected nosedive that continued through the majority of 1938. Production declined sharply, as did employment and profits. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. The administration reacted by launching a campaign filled with rhetoric against monopoly power, which was blamed as the cause of the new problems. The president led an aggressive new direction of the antitrust division of the Justice Department. However, this effort lost its effectiveness once World War II, a far more pressing concern, began.

However, the administration's other response to the deepening of the Great Depression in 1937 brought about more tangible results. Ignoring the pleas of the Treasury Dept., Roosevelt embarked on an antidote to the depression, abandoning his efforts to balance the budget and instead launching a $5 billion spending program in the spring of 1938 which aimed to increase mass purchasing power. Business-oriented observers explained the recession and ensuing recovery in very different terms from Keynesians. They argued that the New Deal had been very hostile to business expansion from 1935 to 1937, encouraged massive strikes which had a negative impact on major industries such as automobiles, and threatened massive anti-trust lawsuits against big corporations. All of those threats decreased dramatically after 1938. For example, the anti-trust efforts fizzled out without major cases. The AFL and CIO unions started battling each other more than the corporations, and tax policy became more favorable to long-term growth.

On the other hand, economist Robert Higgs believes, when looking only at the supply of consumer goods, significant growth in the GDP only resumed in 1946 (Higgs doesn't estimate the value to consumers of collective goods like victory in war). Keynesians believed the war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and at the time it led to fears that when America demobilized, it would return to Depression conditions and industrial output would fall back down to pre-war levels. Keynesians falsely predicted a new depression would start after the war.

Effects

After the 1929 Wall Street Crash there was a brief recovery in early 1930. However, late in the year it began to fluctuate downwards, almost continuously, for the next two years. It wasn't until late 1930 that Americans began to fully feel the effects of that event. Indeed, only about 1/3 of the population was seriously hurt by 1932. The other 2/3 (who were employed) suffered from reductions in money income, job security, and hours of work. Those with secure income or assets gained in real wages due to reduced prices, but some experienced difficulties repaying their debts. Poverty and malnutrition became more common. Moreover, even those that benefitted no longer had a guaranteed future. Many had family that was adversely affected by the downturn.

Easy credit had fueled the consumer-driven economy of the 1920's. Following the depression, credit availability began to tighten, both for business and consumers. With lenders restricting their credit availability and moving swiftly to secure their liabilities, the first to be liquidated were the employers that were hurt by the ripple effect of the Wall Street crash. As employers closed up shop, the ranks of the unemployed grew, which further complicated the banking situation by reducing income from credit lines. This cascaded into a liquidity crisis which led to the banking panic of 1933. Consumers who had taken advantage of credit were sometimes unable to meet the monthly payments. Repossession of automobiles, household goods, and furniture became common.

Home mortgage foreclosures rose throughout the period and affected people of all income levels. In a few localities, the forced sale of personal property drew neighbors who disrupted the proceedings by protesting the actions in support of the evicted family. The angry crowds also scared off potential bidders for auction goods. While this allowed neighbors to pick up their neighbors' possessions for pennies on the dollar (which were occasionally given back to the family following the sale), it did little to reduce the evicted family's debt.

The wealthy, who had significant Wall Street investments, did experience losses; however those losses were dependent on how those investments were structured. As a result, all but the most well-off curtailed their spending. Some of the wealthiest families, such as the Kennedys, were virtually unfazed by the stock market crash. They were often able to continue living their lives much as they had before the Depression. Others, like the Hellers, used their independent investments to "float" for several years after the Crash, most bottoming out by the mid-1930's. On the other hand, many wealthy American families found their extensive finances wiped out overnight, and literally went "from riches to rags."

A massive series of runs on banks in early 1933 caused over 4,000 banks to close permanently that year, with average deposits of $900,000. These banks merged into stronger banks; many months later depositors received about 85% of their money back. It is an urban legend that millions lost their money in banks; on the contrary, they were forced to withdraw their deposits to pay their bills. The total of all deposits in all 9,106 banks that were suspended from 1929 to 1933 was $6.886 billion; losses to depositers were $1.336 billion, or 19%. [Historical Statistics series X741-755].

High-end consumer goods providers, such as luxury automobile manufacturers, saw their sales numbers suffer greatly. Cleveland, OH had the highest concentration of luxury automobile manufacturers outside of Detroit. From 1929-1934, Jordan, Stearns-Knight and Peerless cars all ceased production; Peerless survived as a company, but did so by discontinuing automobile production and regrouping as a brewery.

Purchases of cheaper cars slowed as well. General Motors encouraged consumers to buy cars by advertising that "the sale of one car keeps an autoworker employed for three months, allowing that worker and his family to buy goods and services with their salary." However a substantial proportion of Americans couldn't even pay for a tank of gas, much less a new car. The entire auto industry struggled to maintain sales at a profitable level.

Migration

Drought hit the Great Plains states. While weather was the catalyst for the Dust Bowl (a term coined in 1935), the root cause was poor farming and soil conservation techniques on land that was not suited for growing corn. When the thin layer of top soil was depleted, the land became unsuitable for cash crops. This led to farm failures and mortgage foreclosures. Migrants who made the trek west to California were called "Okies" or "Arkies", because they flooded the labor supply of the agricultural fields. Their story was dramatized in John Steinbeck's famous novels "The Grapes of Wrath" and "Of Mice and Men."

In the South, sharecroppers and rural workers migrated north by train in the hope of working in auto plants near Detroit. In the Great Lakes states, farmers experienced depressed market conditions for their good and crops ever since the end of World War I. Family farms that had been mortgaged during the 1920's to provide money to "get through until better times" risked foreclosure when their owners failed to make their payments. Unlike the dustbowl states, the midwest experienced near-normal weather conditions during the 1930's. Farmers in that area of the country could make a living if they spent their incomes in a prudent manner.

Middle class survival

A large proportion of the American middle class was able to survive the ordeal. Those in professions where jobs and skills were considered "depression proof" (lawyers, doctors, government positions, teachers in well-funded districts, etc.) continued to work. Daily life was made more secure if said workers had little debt before the stock market crash, had liquid savings and generally lived without extravagances. Middle-class households managed to get through the economic depression by spending wisely, adapting to conditions, and avoiding unnecessary purchases.

Cultural Trends

One American industry that flourished during the 1930s was the movie industry (Hollywood). The emergence of films with sound in the late 1920's, combined with the escapism that movies provided to a nation down on its luck, made the film industry one of the few that succeeded both in netting profits and in setting the national mood. Films often featured lavish sets and carefree characters, allowing an increasingly depression-weary country to leave its cares behind. Shirley Temple films were leading attractions, perhaps because of her characters' unwavering hopefulness in the face of trying circumstances that resonated with American audiences. Movie genres that thrived during the 1930's included screwball comedies (notably those by The Three Stooges and the Marx Brothers), animated cartoons from Disney and Warner Bros., lavish musicals (notably those by Busby Berkeley), gangster movies, Westerns, and newsreels.

Depression Statistics

Economic indicators show that GNP in the American economy reached its low in the summer of 1932 to February 1933, then steadily climbed upward until a downturn in 1938. However, unemployment continued to remain at very high levels until 1941.

Answer 2

Germany was badly affected. They had inflation and starvation. This led to Hitler taking power. Italy also turned to militarism and invaded Ethiopia. Japan also militarized and invaded Korea and China. Canada had many of the same problems as the United States with many people out of work and little investment.

Answer 3

The Great Depression of the US that began near the end of the 1920's was an economic disaster for the US and it effected other nations in the world economy. Both before World War One and thereafter, the US economy was huge. Figures published in 1914, for example show that the US had the largest economy in the world. In 1929, the US led the world in manufacturing with $181 billion worth of products. Large economies do not become so without impacting the other nations of the world that, in the case of the US, were trading partners. By 1932, the highs recorded in 1929 were down by 50%. That type of a drop is an indicator of how extensive the Great Depression was. Other industrial nations that were dependent on a healthy US economy, were severely impacted when the economy of the US dissolved. Basically, due to the Great Depression, its fallout was detrimental to its trading partners. Here is one example of how that impact operates. When the US had a strong economy, its people had money to spend. If a country such as France exported allot of wine to the US all was good. A contracted US economy was not a buyer of French wines, people could not afford it. The result was a sharp decline for French wine producing companies. This would reduce demand and French wine producers would earn less money and perhaps winery workers would lose their jobs.

Answer 4

See link below for good (and conicise) information on the effects of the Great Depression and foreign policy.

Answer 5

The Great Depression affected countries around the world. Trade was down around the world which affected Europe and other continents.

Answer 6

it brought peanutbutter and strawberry jelly to the US

and hobo's

Answer 7

everybody had to starve and wait in long lines for food