Lupe Martinez
Final Paper
FINC-310-01
December 5, 2014
The Great Depression Many of us are aware of the most recent economic crisis of 2007-2008. It was a rough period and still holds some remnants in the present economic state. However, although we may not have been alive at the time, we are aware The Great Depression of 1929 has been the worst economic situation ever to be experienced by the industrialized Western world. It was a deep, long-lasting, and severe economic slump experienced on a global scale. Preceding the Great Depression, the Roaring Twenties was a period of economic prosperity. Unfortunately, the Jazz Age led to a threat in the traditional values of the US. The average American bought cars, household appliances (on credit), and speculated in the stock market-which offered lucrative returns. Yet, despite businesses were making huge gains (averaging sixty-five percent from the mechanization of manufacturing), the average worker’s wages had only increased by a measly eight percent. Also at the time, there was an emerging and widening economic gap-which refers to the difference between the rich of the country and its poor population. At the time, the most powerful one percent of society earned a total income equating to forty-two percent of the total population. This fact, combined with the increased production of goods and a substantial rise in personal debt, simply could not be sustained for much longer. On Black Tuesday, October 29, 1929, the stock market crashed in the US and triggered the Great Depression-bringing about an economic fall of unmatched and unprecedented proportion. The collapse soon spread to the rest of the world, lasting from late 1929 until the early 1940s. Although the US had gone into a prior downturn of the economy six months earlier, the Great Depression truly commenced with the catastrophic collapse of the New York Stock Exchange in October of 1929. The subsequent three years experienced a continuous fall of stock prices, by late 1932 they had dropped to an appalling twenty percent of their value from 1929. Needless to say, this devastated and destroyed thousands of individual investors. The downfall also severely impacted banks, as well as other financial institutions- particularly those holding stocks in their portfolios. Consequently, many banks were forced into insolvency; by 1933, forty-four percent of the United States' banks had failed. This fact, combined with a nationwide loss of confidence in the economy, led to significantly-reduced levels of spending which in turn reduced demand and production, thus exasperating the downward spiral. The consequences included drastically falling output and significantly rising levels of unemployment; by 1932, U.S. manufacturing output had fallen to fifty-four percent of its level in 1929. Unemployment had risen to between 12 and 15 million workers, equating to 25-30 percent of the total work force. Though The Great Depression emerged in the US, it quickly turned into a global economic nosedive due to the closely related relationships forged between the US and European economies post- WWI. The US emerged from the war as the major creditor and financier of postwar Europe, whose national economies had been greatly weakened by the war itself- by war debts, and, in the case of Germany and other defeated nations, by the need to pay war reparations. Thus, when the US economy crashed and its flow of investment credits to Europe dried up, prosperity also collapse there. The Depression especially hit hard nations that were deeply indebted to the US, i.e., Germany and Great Britain. In Germany, unemployment rose sharply beginning in late 1929, and by early 1932 it had reached 6 million workers, or 25 percent of their work force. Britain was less affected, but its industrial and export sectors remained seriously depressed until WWII. At this time, most nations sought to protect their domestic production by imposing tariffs, raising existing ones,
