The Great Depression

The Great Depression

The great depression was the United States longest recession with the highest unemployment rate in the history of our country. The aftermath of the recession brought many to question as to what caused it and what cured it? In my opinion it was the lending practices of the banks and intervention of the government that brought down the economic climate of that time. Initially the banks started to lend a ton of money (due to low interest rates from the Federal Reserve) to people to invest in the stock market and real estate. As the stock market went to an all-time high, it created a bubble that makes everyday companies seem larger than they were supposed to be. The reaction of the Federal Reserve was increase interest rates to slow down the economy. The effect of this made the stock market collapse and made banks lose money while offsetting the lending ratio 9:1 (lending/reserves) that they loaned at. The collapse of the banks destroyed business from growing due to the lack of lending from the banks. Not only did it destroy businesses but it causes many people to lose their money.

From the catastrophic event, the government enacted the least logical policies (FDR’s New Deal)  to enforce what they thought would promote economic security. Through their efforts, they raised taxes on business owners, promoted unions and made employers pay employees at what the government thought they should be paid. With these regulations and others, the business owners found it hard to make a go at sustaining a business and hiring employees. To add to this they enacted the Smoot Hawley tariff that raised tariff on imported goods making trade decrease and trade wars with countries increase. This resulted to unemployment rates of 20-25 percent and a prolonged depression. While all this was happening the Federal Reserve raised interest rates which resulted in a few dollars chasing goods. So to the average consumer the price of food increased to a point where it was hard to afford getting by.

The end of the Depression only ended during World War Two, when every enabled man was asked to serve in the military. By everyone joining the military the Unemployment rate decreased and the Federal Reserve lowered interest rates to lend to the government for war. This made it accessible for business to receive loans and grow their business. During this period in our history the countries G.D.P. increased and the standard of living increased.

In conclusion the government’s intervention both harmed our economy at the beginning and improved our economy at the end. Personally I believe a free market system will correct itself if the right rules by the government our set into place.