LEMMENJOKI

The Great Depression In American Banking

In the year 1929, there was a crash in the stock market. After this, the U.S. has suffered depression that would have lasted  for years. Mentioned below are some of the major causes as well as effects of the Great Depression in American banking.

What Was The Great Depression?

From the year 1929-1939, the U.S. has experienced one the ruthless downturns in the country’s history. It started with the crash of the stock market in 1929 and the following decade was seen to be marked by high rate of unemployment as well as bank failures. Worker lost their jobs as well as their homes along with their possessions.

Many people who kept their jobs, hardly earned enough to meet up their needs. The currency valuation also saw a steady decline and simultaneously the agricultural market has gone through a downfall. Panic became widespread in the country and the lives of the people also got affected badly. By the year 1933, almost half of the banks in the U.S. has failed and nearly 15 million people lost their jobs.

What Were The Causes Of The Great Depression?

It was never only one factor that caused the Great Depression but rather a combination of domestic as well as worldwide conditions. Here are some top reasons that have been cited as the causes of the Great Depression.

Crash Of The Stock Market In The Year 1929

The stock market crash that took place in the year 1929 is one of the cause of the Great Depression. It was considered as one the main causes. Two months after the main stock market crash in the month of October, many stockholders has almost lost greater than $40 billion. However the stock market started to regain some of the losses. By the end of the year 1930, it did not turn up to be enough and America entered into what is known as the Great Depression.

Failures Of The Bank:

During the year 1930, many banks saw failure. Deposits in the banks were not insured. As a result of bank failures, people also lost the savings.

The banks that survived were unsure of the economic condition and were more concerned about their individual survival. They stopped being willing enough for creating new loans. This worsened the condition and lead to much less expenditures.

Purchase Reduction:

The stock market crash along with fears related to more economic distress, forced individuals from different classes to stop purchasing items. Thus there was a decrease in the production of the number of items and also workforce decrease. People lost their jobs.

Thus they were not able to continue making payments for the items they already bought through installment plans and so there occurred repossession of their items. Accumulation of huge inventory began. There was a rise over 25% in the rate of unemployment. This implied that even small spending to aid will alleviate the economic condition.

Effects Of The Great Depression:

Some of the main effects that took place in the years of the Great Depression are:

Rise In The Unemployment:

The wages for many workers were not as high right before the occurrence of the depression. The banks could not offer savings for the people as well as companies were falling apart. As a result the level of unemployment increased to high rates. The Great Depression began with the rise in the unemployment rate but still under 10%. As nadir was reached by the depression, it become worse significantly. It went past 20% in the year 1932 and by the year 1933 it was almost 25%.

Closing Of The Banks:

There was practically no existence of confidence as well as belief in the financial system of the U.S. after the crash of the stock market. This affected the banks to a great extent. Many people started to withdraw the money that they had from the banks. They either preferred to store it or purchase gold. Banks accounts were closed and banks were not having enough cash available to meet up all these withdrawals.

Such bank runs were done by the depositors with a hope of getting back their money before there occurred complete collapse of the banks in the most adverse scenarios. But this most adverse scenario turned up as real life scenario and more than 9000 banks failed. As a result there was a loss of billions of dollars that the bank depositors could not recoup.

Great turmoil was presented for the country as well as the world by the years of the Great Depression. After this struggle, lessons were learnt by government and also the Federal Reserve to avoid allowing a recession becoming a depression of the same vastness ever again.