The Downfall of America: Excessive Fatigue
In the year of 1929, the stock market crashed which initiated the Great Depression that not only swept across the United States, but Europe as well. In result, an inflation in unemployment caused millions of people to become poor and homeless. Banks had to close and employers had no choice but to lay off people in order to make a decent profit. Nobody was buying because nobody could afford anything during the Great Depression. The aftermath of people buying on margin without paying it back caused a dispute in funds that bankrupted the banks. Will the people ever learn from their mistakes, or will they just become greedier?
The general population continued to purchase exorbitant and unnecessary items with credit, ignoring excessive warnings the economists attempted to bring to the people's attention. The people were increasingly penetrating the market with their purchases.
Then, after finally hitting its peak in 1929, America was not prepared for the narrow future. "Moreover, they presuppose that the event to be explained is the twelve-year series in which annual real output invariable fell short of the economy's capacity to produce and that, within this time span, the determinants of each year's substandard performance consisted of contemporaneous or shortly preceding conditions and events" (Higgs, 2016). The following is America's point of view of how the stock market plummeted in 1929 causing the Great Depression however, Australia one of the European countries affected by the Great Depression has a different opinion of how things went down. They argued "that the Federal Reserve artificially cheapened credit during most of the 1920s and orchestrated an unsustainable inflationary boom" (Skousen, 2017). Buying on credit without proper knowledge on economics, and the risks for buying on margin, and taking out loans were one of the many reasons that caused the Great Depression in 1929.
However, the people in America were not the only ones who were greedy, the corporations and banks who issued the loans had their deceitful ways. "During the 20s, there was an average of 70 banks failing each year nationally. After the crash during the first 10 months of 1930, 744 banks failed 10 times as many. In all, 9,000 banks failed during the decade of the 30s" (Bank Failures, n.d.). The banks paid a price after the people exploited their credit limit and took out loans they couldn't afford to pay back. The aftermath of the banks closing was devastating and caused an inflation in unemployment, causing millions of Americans to lose their possessions. In hopes of reinstating the banks and creating a positive change for his first term, Franklin Delano Roosevelt's goal was "to declare a national "bank holiday" closing the banks for a three-day cooling off period" (Bank Failures, n.d.). As a result of declaring a national bank holiday, the people's faith had been restored in banks, and when the banks opened a long line was waiting for the people to return their money. "The study concludes that the Bank Holiday and the Emergence Banking Act of 1933 reestablished the integrity of the U.S. payments system and demonstrated the power of credible regime-shifting policies" (Silber, 2009). Banks started reopening and a new era was being pushed through the devastating times the people experienced as a result of negligence.
The Keynesian perspective is based on two options offered by producers to consumers in hopes of obtaining business from consumers.
"One is monetary policy, which can lower interest rates to encourage consumers and businesses to borrow more and use the money for spending on consumer durables, housing, factories or equipment. The second tool is fiscal policy, which can temporarily increase government spending or cut taxes again with the goal of raising consumption or investment" (Furman, 2008).
The purpose of these two options were to provide a balance between economic reform, and preventing another crash in the stock market from happening again. Opening up the banks would create jobs for hundreds of thousands of Americans, thus ending the Great Depression and providing security for them. To stabilize the economy and prevent another Great Depression, the government created an insurance policy required for all banks, to be insured up to $250,000 dollars. The goal of this policy was to reinstate the people's faith in banks by depositing their money back into the banks. The Keynesian view was right in many ways; first, it explained the cause and effect of the Great Depression and what led to it. Second, it provided an accurate solution to bring the economy out of the slumbers and bring it back up. After many years, the economy finally started to stabilize and millions of people got their jobs back.
In conclusion, the Great Depression was a disastrous time for millions of Americans, and resulted in the loss of millions of jobs for the people. The economy deflated drastically and fell into the slumbers which caused many people to lose their; homes, jobs, income, etc. that took over 10 years to rebuild. In order for the economy to become stabilized again, President Franklin Roosevelt declared a national bank holiday closing the banks for a 3-day period. The economy also needed a new method to bring the nation out of the slumbers. After the Great Depression the government required all banks and their accounts to be insured up to $250,000 to prevent another Depression from happening again. The people also installed new procedures and methods for properly purchasing loans, and created new laws that immediately went into effect to safely store the people's money and restore their faith in banks. The economy didn't fully recover until later, but it was a huge start when the people returned their money into the banks. By elaborating and studying the mistakes we made in history, future generations can utilize this type of information to prevent making the same mistake as our founding fathers made in the past.