The Great Depression was the worst economic depression in United States history. It started on a day known as Black Tuesday, when the stock market crashed. In three years, the stock market had dropped 89% and millions of Americans were out of work.
The Start of The Great Depression
The Great Depression was the worst economic downturn in American history. The stock market had been going up and up in 1929 and most people thought it wouldn’t stop going up.
Then, on Thursday, October 24, 1929, panic selling struck Wall Street. And it only got worse from there. On the following Tuesday, known as Black Tuesday, the stock market had dropped more than 15%. The stock market hit its bottom on July 8, 1932 when the Dow Jones Industrial Average stood at 41.32, a number that wouldn’t be reached again until 1954. This was an 89% loss in the DJIA. The unemployment rate hit over 25% and wages dropped dramatically as many Americans lost their homes and farms.
Historians point to several factors that caused the stock market crash. Looking back at some of the comparisons to the 2008 Great Recession are also interesting. Businesses were making great profits in the 1920s while workers were not making very much but still buying merchandise on credit. Another historian writes that the crash came during a period in which real estate prices were declining which had peaked four years earlier.
The stock market (the Dow Jones Industrial Average) peaked at 381.17 on September 3, 1929 and then fell 17% in that month. The stock market then climbed back up gaining about 8% of the losses back. Today, we call that volatility.
The first real downturn that started the crash of 1929 was on Thursday, October 24, 1929, a day that is known in history as Black Thursday. The following Monday the market fell 38 points or almost 13%. The next day was the infamous Black Tuesday, when the stock market fell another 30.5 points, an almost 12 % drop with a record volume of 16 millions shares traded. That volume record was not broken until 1968.
The stock market actually recovered about 60% of the losses between November 1929 and April 1930. Then the market started a slide in April 1931 that continued until July 8, 1932 when the stock market bottomed at 41.32, an 89% decline from its 1929 peak. The 1929 stock market peak of 381 would not be seen again until 1954.
Ironically, 16 out of the top 20 one-day record percentage gains for the stock market were during the Great Depression. On October 30, 1929, just two days after Black Tuesday, the market went up 28 points, which was 12.3%. Incredibly volatile.
When you look at the above numbers and see the stock market fell 38 points in one day, you might not think that wasn’t so bad. It is the percentage that matters. Considering a Dow Jones Industrial Average of 16,000 in 2014, a drop of 89% would out the DJIA at 1760.
When people think of the Great Depression and who the president was at the start of the Great Depression, they usually think of Franklin D. Roosevelt (FDR). But when the depression started and for the next three years, the president was Herbert Hoover. Franklin Roosevelt wasn’t elected president until the fall of 1932, with his inauguration in March 1933.
Shortly after his inauguration, President Roosevelt blamed “unscrupulous money lenders” and a “generation of self-seekers” for the economic problems. That sounds very close to the blame for the 2008 Great Recession.
Facts of the Great Depression
- By 1932, 40% of the banks in the US had failed.
- In 1932 the government announced a temporary halt by banks of home foreclosures.
- Unemployment reaches its worst point in 1933 with the unemployment rate at 25.2%.
- Between 1929 and 1932, the average income of the average American family dropped by 40% from $2,300 to $1,500 per year.
- During the depression of the 1930s the average wage of manufacturer was $17 per week, for a doctor the average wage was $61 per week.
- By the end of 1930, some 3 million children were forced to quit school and at least 200,000 of them took to the roads on their own.
- The circulation of money was so low that the need for coins had diminished so much that the U.S. mints did not even mint nickels in 1932 or 1933.
- The number one song in 1932 was “Brother, Can You Spare a Dime?” by Bing Crosby which pretty much summed up the 1930s.
- The depression changed clothing as well when the zipper became widely used because buttons were too expensive.
- Between 1935 and 1938, 800,000 people left their homes in Arkansas, Missouri, Texas and Oklahoma because of the depression and the severe drought that had ruined their land and lives. This severe drought was known as the Dust Bowl.
Programs to End the Great Depression
The government came up with programs to put Americans to work repairing and building. The Empire State building, the Chrysler building, the Golden Gate Bridge and Rockefeller Center were all built during the depression.
In 1933, congress passed the Home Owners Refinancing Act, which provided mortgage money and other aid to struggling homeowners. By the end of this program in 1936, it provided loans for almost one million mortgages.
At the time of the depression, the U.S. and the world was on a gold standard, which meant that the US dollar was backed by gold, the government would redeem money for gold, at that time gold was $20 per ounce.
In 1933, FDR made it a crime to hoard gold, allowing Americans to only own a small amount of gold jewelry. All Americans had to turn in their gold by May 1, 1933 or face fines and or imprisonment. Their gold was redeemed at a value of $20.67 per troy ounce.
The reasoning for this was it was believed that the hoarding of gold was hindering or stalling economic growth and by outlawing the hoarding of gold would allow the Federal Reserve to increase the money supply. It became legal again for Americans to own tangible gold in 1974.
The End of the Great Recession
Many believe that it was the start of World War II in 1941 that ended the great Depression, others say that isn’t true and that the economy was starting to rebound in 1938 before the US entered the war. It could still be true that the war helped since World War II started in September 1939 when Germany invaded Poland and the US went into production to manufacture many items the British were going to need soon.
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