Question

What were the causes of the Great Depression? What would lead up to the financial crisis? How did Hoover fail to act? What did FDR do differently? What were the main points of the new Deal?

Answer 1

The Great Depression of the early 19th century is the worst hit economic meltdown of the world history. The great depression lasted for over 10 years (1929-1939) and it shattered almost every economy of the world. There has been steep rise in the inflation, unemployment and poverty. During that period, industrial production plummeted to an all time low level in the global economy. USA was worst hit by the Great Depression of 1929-39 and there was sharp decline of 30% in US GDP during that time.

The key reason of the Great Depression of the world was crash of Stock market in USA. In the early 1920s the stock market touched a new height. Due to rising stock prices, many people preferred to invest money in stock market and some people even mortgaged their properties to arrange fund for investment in the capital market. The boom period of the US stock market did not lasted very long and stock prices started falling down in the late 1920s. Due to financial uncertainty, investors rushed to offload their stocks in the market and the situation became worst at the end of 1929, when stock prices slipped down to 34% and investors drastically withdrew their investments from stock market and demand of consumer goods and services became all time low. Furthermore due to decline in consumer demand, industrial production slipped down and many people lost their jobs. Apart from stock market crash, there was also banking crisis that emerged from withdrawal of cash from banks by the customers. Federal Reserves during 1932 also raised the key interest rates that restricted money supply in the already ailing US economy. The US imports from foreign countries was an all time low due to low consumer demands in the domestic economy. But that created unfavorable trade situation of other countries with US and marked the spread of great depression from US to the rest of the world.

The Great Depression of US started during the presidency of Herbert Hoover. Immediately after the crash of US stock market, Hoover initiated a series of confidence building measures to check the economic recession. The confidence building measures include establishment of government agencies, cooperation between the government and private companies and generating financial resources for infrastructure development. But all of his step failed to check the slowdown in the US economy There was increasing demand in the country for intervention of Federal government in the economy. But then president Hoover refused to directly intervene in the market to check skyrocketing prices of goods and services and devalue the US dollars.

Franklin D. Roosevelt (FDR) became next US president in 1932. He initiated an economic revival plan "New Deal". Like Hoover, FDR too formed federal agencies to regulate prices of goods and services. But FDR also enacted financial restructuring bills that involved regulation of stock market, federal aid to unemployed persons, increasing incomes of industrial workers and farmers, resolving insolvency in banking industry and boosting consumer demand. He also strictly implemented fiscal administration in federal agencies to bridge the budgetary deficit.