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and finance Allah shmoop What was the Great Depression Okay

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So what is the Great Depression Yes yes it's the

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feeling you get after a major break up You know

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where you sit in front of the TV for twelve

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hours at a time shoving massive amounts of Cheetos in

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your mouth and obsessively checking your ex's instagram feed one

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form of great Depression But the Great Depression we're talking

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about here describes a key period in the twentieth century

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Specifically the Great Depression represents the worst economic downturn in

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American history Ever wonder why your great grandpa spent so

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much time burying Mason jars filled with quarters in the

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backyard while obsessively mumbling about those *** banks While starting

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in the late nineteen twenties the Great Depression lasted until

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in the early nineteen forties really ending Justus America for

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ever cared for entry into World War two The Depression

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included mass unemployment widespread bank shut down There were significant

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foreclosure like people getting kicked out of their homes Then

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there was starvation and well just long lasting financial trauma

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So first a bit about the name When economic conditions

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are good and the economy is growing That's called an

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expansion when the economy slows down While that's known as

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a recession if a recession last for a long time

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and gets particularly bad well then it becomes a depression

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And when a depression goes on for well over a

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decade and it spreads throughout the world where it contributes

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to mass political dislocation which eventually feeds into the causes

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of World War Two well then it becomes the Great

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Depression Great Not in a good way Well it's nineteen

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eighteen World War is over The countries of Europe were

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bombed out and bankrupt Thank you Germany and the U

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S Emerged from the war is the key economic power

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in the world Now it's the nineteen twenties US is

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the centre of world economy The jazz age is in

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full swing Gatsby is there hosting lavish parties in West

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Egg Babe Ruth is partying down with Charlie Chaplin in

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a C speakeasy owned by Al Capone The U S

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Is benefiting from a boom and consumer products and rapid

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expansion of technological improvements like radios That was high tech

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in those days There were cars there were refrigerators Yeah

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they're all becoming common household items and we made him

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we exported him well Meanwhile financial speculation runs rampant You

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could make a killing in a Florida land deal or

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by booming tech stocks like RC A right the Radio

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Corporation of America But things started to get shaky toward

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the end of the decade late nineteen twenties commodity prices

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have been falling for some time leaving farmers who sell

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the ultimate commodity you know coloring turnips wheat out of

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much of the prosperity of the nineteen twenties Meanwhile the

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stock market was pumped up by unstable margin trading Basically

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people have been borrowing money to bet on stocks A

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trader has a thousand bucks in his account His broker

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lets him borrow another five hundred dollars on margin Margin

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just means that the trader is allowed to borrow money

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to purchase more stock The shares of stock become the

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collateral for the money he borrowed If the broker ever

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wants the money back the cash ola while the broker

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can then make a margin call meaning that the broker

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Khun demand that the investor there a trader sell his

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stock immediately in order to pay the money back Well

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the system works well when the stock market's going up

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up But as you can imagine it can lead to

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disaster when stocks decline quickly So first look at how

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it works in the good times The trader has a

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thousand dollars worth of equity but takes on five hundred

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bucks in margin So all in that Khun by fifteen

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hundred dollars worth of stock purchasing hundred shares of Amalgamated

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Fedora Ink at fifteen dollars each stock goes up twenty

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Trader then sells the stock for two thousand dollars pays

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back the five hundred bucks he borrowed plus and maybe

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twenty five bucks and interest Then he keeps the additional

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profit well The trader just made four hundred seventy five

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dollars from his thousand dollars of equity position or thousand

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dollars in stock for the owned That's forty seven point

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five percent return even though the stock only went up

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a third like thirty three percent Well the additional dough

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from the margin account further inflates the stock bubble of

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the nineteen twenties but it also makes the bubble Mohr

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unstable Well margin in those days acted to pump up

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the profits when stock market rose but it also acted

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to deepen the pain When stocks went down traders lost

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more than they had and brokers got caught with large

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amounts of outstanding debt that well nobody could pay back

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Same traders Same thousand dollar account same five hundred dollars

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margin All invested in one hundred shares of Amalgamated Fedora

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Ink at fifteen bucks a share But now the doomsday

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scenario The bubble bursts Amalgamated food or a drop from

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fifteen dollars a share too four dollars a share The

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broker makes a panic margin Call the trader sells his

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hundred shares and gets the four hundred bucks It's all

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he can get Well now he's lost eleven hundred dollars

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on his thousand dollar account The brokerage is still owed

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one hundred dollars The broker is on the hook for

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that hundred dollars but the brokers also loaned the same

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margin to one hundred other clients Each of them are

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also one hundred bucks in the hole So now the

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brokerage there's ten grand in the hole in the economy

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The nineteen twenties cheap credit pumped up other parts of

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the financial industry It wasn't just the stock market Speculation

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ran rampant Creating an unstable system Susceptible The shocks like

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that Which brings us to nineteen twenty nine right here

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the troubles culminate in a massive stock market crashed It's

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not the plunge in stock prices that causes the Great

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Depression but the crash acts as a curtain raiser for

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much of the hardships to men Calm following the Wall

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Street bloodbath things quickly get bad for the rest of

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the economy Like businesses collapse unemployment skyrockets Banks begin to

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fail There are mass foreclosures and bankruptcies So what happens

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here Late twenties early thirties It's Grapes of Wrath time

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Yeah the people in charge like President Herbert Hoover and

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the Federal Reserve Well they don't really know how to

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deal with this kind of downturn Previous economic panics have

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occasionally been sharpened painful but they've always corrected themselves quickly

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Not after nineteen twenty nine Things just keep getting worse

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over the coming years Announced nineteen thirty two Election year

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President Hoover is defeated by FDR Franklin Delano Roosevelt FDR

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gets elected on the promise of a new deal a

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series of measures meant to re invigorate the economy and

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regain confidence in the finance industry Well FDR in a

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newly elected Congress immediately started passing relief actions Banking reform

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government regulation finance regulation Also government start spending money on

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relief efforts and projects meant Teo get people backto work

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well The new Deal takes its inspiration from British economist

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John Maynard Keane's He theorized that governments should combat economic

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troubles with deficit spending in an effort to stimulate demand

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and give business a kick start after nineteen thirty two

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while things improve though a full recovery takes the rest

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of the decade Ultimately the preparations ahead of World War

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Two and eventually the boost from all of this spending

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pulled the US out of the Great Depression So yeah

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it didn't even need to go to counseling Uh oh

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