1/23/2018 Great Depression: What Happened, Causes, How It Ended

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The
US Economy

The Great Depression: What Happened, What Caused It, How It

Ended
Why There Was Only One Great Depression
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The Dust Bowl in Oklahoma created storms so bad they buried cattle. Photo: Arthur Rothenstein/National Archives

By Kimberly
Kimberly
KimberlyAmadeo
Amadeo
Amadeo
Updated November 07, 2017

The Great Depression was a worldwide economic depression

depression
depression that lasted 10 years. Its kickoff was “Black
Black
BlackThursday
Thursday
Thursday,"
Thursday October 24,
1929. That's when traders sold 12.9 million shares
shares
sharesof
of
ofstock
stock
stock in
stock one day, triple the usual amount. Over the next four days, stock

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prices fell 23 percent in the stock

stock
stockmarket
market
marketcrash
crash
crashof
of
of1929
1929
1929.
1929 But the Great
Great
GreatDepression
Depression
Depressionreally
really
reallystarted
started
started in
started August when the economy
contracted.

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The
Unemployment Reached 25 Percent 
Great
The Great Depression
GreatDepression affected
Depressionaffected
affected all
affected aspects of society.

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By its height in 1933,  unemployment

unemployment
unemployment had
unemployment risen from 3 percent to 25 percent of the nation’s workforce. Wages for those who still
had jobs fell 42 percent. Gross
Gross
Grossdomestic
domestic
domesticproduct
product
product was cut in half, from $103 billion to $55 billion. That was partly because
of deflation
deflation
deflation.
deflation Prices fell 10 percent each year. Panicked government leaders passed the Smoot-Hawley tariff
Smoot-Hawley tariff
Smoot-Hawley tariff to
Smoot-Hawley tariff protect domestic
industries and jobs. As a result, world trade plummeted 65 percent as measured in U.S. dollars. It fell 25 percent in the total
number of units. 

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Life During The Depression

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The Depression caused many farmers to lose their farms. At the same time, years of overcultivation and a drought created the

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The
“Dust
Dust
DustBowl
Bowl
Bowl”
Bowl in the Midwest. It ended agriculture in a previously fertile region. Thousands of these farmers and other unemployed
workers looked for work in California. Many ended up living as homeless “hobos.” Others moved to shantytowns called
“Hoovervilles
Hoovervilles
Hoovervilles,"
Hoovervilles named after then-President Herbert Hoover.

What Caused It
According to Ben
Ben
BenBernanke
Bernanke
Bernanke,
Bernanke the past chairman of the Federal
Federal
FederalReserve
Reserve
Reserve,
Reserve the central
central
centralbank
bank
bank helped
bank create the Depression. It used tight
tight
tight
monetary
monetarypolicies
monetary policies
policies when it should have done the opposite. Bernanke
Bernanke
Bernankehiglighted
higlighted
higlightedthe
the
theFed's
Fed's
Fed'sfive
five
fivecritical
critical
criticalmistages
mistages
mistages.
mistages

the
1. The Fed began raising the fed
thefed funds
fedfunds rate
fundsrate recession
rate in the spring of 1928. It kept increasing it through a recession
recession that began August 1929.
That's what caused the stock market crash in October 1929.

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1/23/2018 Great Depression: What Happened, Causes, How It Ended

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2. When the stock

stock
stockmarket
market
marketcrashed
crashed
crashed,
crashed investors turned to the currency
currency
currencymarkets
markets
markets.
markets At that time, the gold
gold
gold standard
gold supported the value
value
value
of
ofthe
of the
thedollars
dollars
dollars held
dollars by the U.S. government. Speculators began trading in their dollars for gold September 1931. That created a
run on the dollar. 

3. The Fed raised interest

interest
interestrates
rates
rates again to preserve the dollar's value. That further restricted the availability of money for
businesses. More bankruptcies followed.

4. The Fed did not increase

increase
increasethe
the
thesupply
supply
supplyof
of
ofmoney
money
money to combat deflation.

5. Investors withdrew all their deposits from banks

banks
banks.
banks The failure of the banks created more panic. The Fed ignored the banks'
plight. This situation destroyed any of consumers’ remaining confidence in financial institutions. Most people withdrew their
cash and put it under their mattresses. That further decreased the money
money
moneysupply
supply
supply.
supply

The Fed did not put enough money in circulation to get the economy going again. Instead, the Fed allowed total supply of U.S.
dollars to fall 30 percent.

What Ended the Great Depression

In 1932, the country elected Franklin
Franklin
FranklinD. Roosevelt
D. Roosevelt
D. Roosevelt as
D. Roosevelt president. He promised
promised
promisedto
to
tocreate
create
createfederal
federal
federalgovernment
government
governmentprograms
programs
programs to end the
Great Depression. Within 100 days, he signed the New
New
NewDeal
Deal
Deal into
Deal law.

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