Grace the United States, what happened next was unexpected

Grace Hubbard English 10 period 5 Mr. Crawford30 January 2018Causes of the Great Depression    The Great Depression raged across the United States during the late 1920s and early 1930s, causing half of the country’s banks to fail and almost 15 million people, thirty percent of the workforce, to be unemployed (“Stock Market Crash of 1929”). These drastic unemployment rates seem sudden, but actually they are quite reasonable given the United States’ underlying financial troubles at the time. This tremendous recession had its roots in many pre existing issues that had failed to be solved previously. The Great Depression was caused by an accumulation of economic mishaps including the Stock Market Crash of 1929, problems maintaining the gold standard, and a series of banking panics.    The roaring twenties went off in the U.S. like a firecracker.  New music, new clothes, and new haircuts represented the decade’s false sense of success and prosperity. In fact, the 1920s proved to be an economically slow decade; United States output was at a low. The decline in U.S. output in the 1920s seemed to have come from raised interest rates and a tight U.S. monetary policy, which raised the stock prices to unreasonable levels. As a result investors lost confidence in the market and began panic selling (Romer and Richard H. Pells). This sudden realization of America’s financial trouble was the first spark that would soon light a conflagration of panic and fear. As investors pulled their stocks, people began to develop a distrust in America’s banking system and its stock market. Even with a dark cloud of distrust shadowing the United States, what happened next was unexpected by everyone.    Panic selling on the stock market began on October 24, 1929, known as Black Thursday (Romer and Richard H. Pells).  “Traders sold 12.9 million shares of stock in one day, triple the usual amount” (Amadeo).  Black Thursday was followed by Black Monday and Black Tuesday the next week (“Stock Market Crash of 1929”). On Black Thursday, thousands of stocks were sold and traded back and forth sporadically, causing mass chaos on Wall Street. Everything was happening so fast, stock brokers had no idea what stocks were being traded. During the time of the crash brokers relied on tickers, machines that recorded details of transactions and prices.  There was such a high amount of deals being made, all tickers fell behind permanently, which only intensified the panic (Cooke 91). This was the beginning of the stock market crash of 1929. New York bankers and business executives called meetings and telephoned one another trying to decide how to handle the disastrous situation. According to Tim Cooke, the “Big Six”, a coalition of six banks in New York, held two meetings on October 24: one around noon and one later that night after the closing of the market. After they failed to save the market from complete collapse that day, the “Big Six” were primary targets for balme (89).  Regardless of fault, by Black Tuesday at the closing of the market, it is believed that about $10,000,000,000 was lost; twice the amount of currency in circulation in the U.S. at the time (94). These losses only multiplied in the time following the crash. During the first three weeks following October 29th, the prices of stocks fell as quickly and greatly as they had risen the months before Black Thursday. By the middle of November, twenty six billion dollars had disappeared (98). In one week, the country had lost billions of dollars and thousands of investors were completely wiped out (“Stock Market Crash of 1929”). Everyone was affected, even the people and companies expected to prosper through the worst of times. Directly following the crash, telephone companies benefited briefly thanks to the increased phone calls between brokers. Eventually, even they suffered as businesses closed and people no longer paid for long distance calls. One phone company, Western Electric, laid off almost eighty percent of its employees (“The Crash and the Great Depression” 104). In a few short years, thirty percent of the American workforce would be unemployed (“Stock Market Crash of 1929”). After the market crash it seemed that nothing could get worse, but it was only the beginning.     Since the United States started using paper money in the early years of its existence, that paper was “worth its weight in gold.” Each dollar that circulated the nation represented a dollar’s worth of gold in the federal reserve’s stores. This representation of our paper money in precious metal is referred to as the gold standard. Citizens of the United States have always had the option to exchange their paper money for gold though something called a currency market, although many never found the need. In the weeks following the stock market crash, people began to turn to these currency markets.  Before this, the gold standard was equivalent to the value of dollars possessed by the United States. When citizens began trading in cash for gold, the value of the dollar began to lessen (Amadeo).     The Federal reserve was aware of this decrease in dollar value, and they tried to stop it. Although they did what was thought best at the time, experts now agree that the Federal Reserve should have handled the problem differently.  “The Fed did not put enough money into circulation to get the economy going again. Instead the Fed allowed the total supply of U.S. dollars to fall thirty percent” (Amadeo).  After the Federal Reserve let the dollar supply fall, they increased the interest rate to maintain the dollar’s valuability. This caused even less money to be available for businesses, which resulted in many bankruptcies (Amadeo). The United States was not the only country suffering from financial crises and gold standard issues. According to the Encyclopedia Britannica, “financial crises and banking panic occurred in a number of countries besides the United States. In May of 1931 payment difficulties at the Creditanstalt, Austria’s largest bank, set off a string of financial crises that enveloped much of Europe and were a key factor in forcing Britain to abandon the gold standard” (Romer and Richard H. Pells). The United States saw the economic terror overseas, and U.S. citizens feared that, after the stock market crash and now troubles with the gold standard, their country’s banks would fail just as Europe’s had.     Europe’s financial troubles were caused by banking panics, something the United States would soon become very familiar with. A banking panic comes about when a high number of depositors all lose trust in the solidity of banks and request all their deposits to be given to them as cash. Four series of banking panics swept the U.S, the first occurring in late 1930 (Romer and Richard H. Pells). The banking panics in America were similar to fear of losing the gold standard. People lost trust in something that had worked for many years and caused something successful to fail. Americans feared their money and deposits would soon have little value, but more importantly they feared the continual decrease in circulation of money. People decided it would be better to get their money from the bank while there was still money to be given. The worries about the gold standard may have had something to do with these sudden banking panics, but chances are their roots are somewhere else. High increases in farm debt after World War One and the death of Benjamin Strong, a governor of the Federal Reserve Bank of New York, are believed to be two main reasons that banking panics began to occur (Romer and Richard H. Pells). Banking panics pulled the last straw in the American economy. When Depositors Requested their deposits in cash, the banks were unable to grant them due to the fact that banks only hold small amounts of cash reserves. Banks were forced to liquidate loans to pay depositors which caused many banks to lose solvency and fail. Banks across the nation were inoperable, inflation was ridiculous, and millions were without work. The Great Depression of the 1930s had begun.The Great Depression was a difficult time in American history.People were shocked and unprepared for this financial crisis, which only made it so much worse. In the words of the American Decades encyclopedia, “After the prosperity and boosterism of the 1920s, the depression seemed to many and unexpected and incredible calamity. Capitalism itself appeared to fail” (“The Crash and the Great Depression” 103). Perhaps nothing could have been done to prevent this terrific recession, or maybe there were millions of things that could have been done. What is important, is that we have learned to prevent recessions like this from happening again. The Great Depression taught out nation many lessons on many different levels, and was proof that we can not hold on to the things of this world to support us. These things are temporary and can be taken away at any time. Thanks to this tragic time in history, we have learned to truly give thanks for what we been given.Works CitedAmadeo, Kimberly. “The Great Depression: What Happened, What Caused it, How it Ended.”The Balance. (7 Nov. 2017). Web. 5 Jan., Tim, Ed. Depression America Volume 1 Boom and Bust Danbury: Grolier Educational,2001. Print.Romer, Christina D., and Richard H. Pells. “The Great Depression”. Encyclopedia Britannica.(27 Oct. 2017). Web. 5 Jan.”Stock Market Crash of 1929.” History. (2010). Web. 9 Jan.”The Crash and the Great Depression”. American Decades 1930-1939. Vol. 4. Detroit: GaleResearch Inc., 1995. 103-106. Print.