Timeline of the Great Depression

rdf:langString Timeline of the Great Depression

rdf:langString The initial economic collapse which resulted in the Great Depression can be divided into two parts: 1929 to mid-1931, and then mid-1931 to 1933. The initial decline lasted from mid-1929 to mid-1931. During this time, most people believed that the decline was merely a bad recession, worse than the recessions that occurred in 1923 and 1927, but not as bad as the Depression of 1920-21. Economic forecasters throughout 1930 optimistically predicted an economic rebound come 1931, and felt vindicated by a stock market rally in the spring of 1930. The stock market crash in the first few weeks had a limited direct effect on the broader economy, as only 16% of the U.S. population was invested in the market in any form. But thousands of investors and banks lost money when 10% of invested wealth was lost almost overnight, with prospect of further losses. The crash created uncertainty in people’s minds about the future of the economy. This distrust in future income reduced consumption expenditure. As demand for commodities decreased, so did their prices. However, many banks that had engaged in risky investments in the stock market, and/or had lent money to individuals engaged in trading, suffered balance sheet losses that reduced their capital ratios. Mounting losses from further stock market declines and a worsening macro-economy would further strain the banking system. Over $34 million in wealth would be lost from the collapses in leverage investment products in 1929 offered by Goldman Sachs alone. An increasing number of bank failures in late-1930 interrupted the process of credit creation and reduced the money supply, harming consumption. After a second round of banking panics in mid-1931, there was a major change in people’s expectations about the future of the economy. This fear of reduced future income coupled with the Fed’s deflationary monetary policy resulted in a deflationary spiral that cratered consumer spending, business investment, and industrial production. This further depressed the economy until Roosevelt stepped into office in 1933 and ended the gold standard, thereby ending the deflationary policy. A true understanding of the Great Depression requires not only knowledge of the U.S. monetary system but also the implications of the gold standard on its participatory nations. The gold standard made the involved nations interdependent on each other's policies. Due to a fixed exchange rate, the only way to affect the demand for gold was through interest rates. For example, if interest rates were high in one country, then investors would have no reason to exchange currency for gold and the gold reserves would remain stable. However, if interest rates were low in a different country then its investors would elect to move their funds abroad where interest rates were higher. In order to stop this from happening, each nation within the gold standard union had no choice but to raise its interest rates in correspondence with its fellow nation. This interconnectivity of deflationary policy amongst so many nations resulted in the prolongation of the greatest economic downturn. This article focuses on the economic milestones, with some mention of the political and social impact of the depression on nations and classes in a global context.