it all started with____

Monday, April 23, 2007

[ THE GREAT DEPRESSION]

The Great Depression, the worst economic slump ever in U.S. history, was a time of economic down turn, which started after the stock market crash on October 29, 1929, known as Black Tuesday.

It was also known as a decade of unemployment, low profits, low prices, high poverty and stagnant trade that affected the entire world in the 1930s.

Americans invested in the stock market for six reasons during the 1920s:

1. Rising stock dividends.

New investors entering the market, many who viewed it as an easy way to get rich quick, helped inflate stock prices. Economic historians, however, estimate that a relatively small number of Americans--about 4 million--had investments in the market at any one time. Yet, the constant influx of new investors coming in and old investors moving out ensured that new money was always floating around.

2. Increase in personal savings.

Higher wages meant that even average Americans now had surplus money to put into savings or invest in the stock market.

3. Relatively easy money policy.

At this time, banks made money more readily available at lower interest rates to more and more people. Although economists debate the actual influence of this phenomenon on the stock market, it's conceivable that many people took out loans not only to buy cars, but also to buy stock.

4. Companies invested their over-production profits in new production.

From 1925 on, industry was over-producing. In anticipation of eventually selling the surplus, business leaders funneled their profits right back into industry. They invested in factories and new machinery, and hired more workers, which, in turn, fueled even greater overproduction. This increased production gave the companies an aura of financial soundness, which encouraged Americans to buy more stock.

5. Lack of stock market regulation.

At this time, there were no effective legal guidelines on buying and selling stock.

Free from such limitations, corporations began printing up more and more common stock. Many investors in the stock market practiced "buying on margin," that is, buying stock on credit.

Confident that a given stock's value would rise, an investor put a down payment on the stock, expecting in a few months to pay off the balance of their initial investment while reaping a hefty profit. This investment strategy turned the stock market into a speculative pyramid game, in which most of the money invested in the market didn't actually exist.

6. Psychology of consumption.

The Psychology of Consumption fed the optimism of investors and gave them unquestioning faith in prosperity. When the Crash did come, it was even more devastating because of this unquestioned faith.

Worst hit sectors were heavy industry, agriculture, mining and logging; least affected were white collar workers. The stock market crash of 1929 triggered the Great Depression in the United States.

It began in the United States and quickly spread to Europe and every part of the world, with devastating effects in both industrialized countries and those which export raw materials. International trade declined sharply, as did personal incomes, tax revenues, prices and profits. The main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade.

President Herbert Hoover, underestimating the seriousness of the crisis, called it "a passing incident in our national lives," and assured Americans that it would be over in 60 days.

So as not to alarm the public, President Hoover chose his words carefully when he discussed the state of the economy in 1929. American economists and politicians had referred to previous economic downturns as "Panics," such as the "Panic of 1873" and the "Panic of 1893." Hoover, however, called this latest downturn a "Depression" rather than a "Panic," and the name stuck.

Of course, America was not alone in the Great Depression; it struck all the industrialized nations of the world, including Germany, Britain, and France.

Moreover, Germany still had huge reparation payments to make to the Allies in the aftermath of WWI. These reparation payments fueled spiraling inflation in Germany and crippled their nation's economy.

The Allies themselves had borrowed money from the United States during the war, were unable to pay it all back during the 1920s, and were now not only broke, but in debt.

Even though some of the largest banks tried to stop the value from dropping by buying as many shares as they could, nothing could stop it.

Hence, wealthy men became beggars overnight.

There were many suicides happening in the United States and around the world.

The Great Depression hit farmers especially hard.

Many had gone into debt to buy machinery and land, and now could not make their payments. Low crop prices wiped out potential profits.

In addition to the usual challenges of agriculture, a great drought took place in 1931 and 1932 in the Midwest and the South and turned much of the trans-Mississippi West into a dust bowl.

Nevertheless, if farmers couldn't make a profit selling their products, at least they could still eat, so most stayed put. In contrast to popular images of farmers leaving the land, the 1930s actually had the lowest rate of migration from farms to cities.

The depression ended in the late 1930s and caused major political changes, especially the New Deal that involved :

large scale federal relief programs,
aid to agriculture,
support for labor unions,
and the formation of the New Deal coalition by Franklin Delano Roosevelt.

The long-term memories affected the nation for decades as a consensus was reached that it would not be allowed to happen again.

The Great Depression was not a sudden total collapse;
the decline came in many fits and starts over a period of three years,
reaching the bottom in March 1933, with occasional small upward blips.

In the spring of 1930, credit was ample and available at low rates, but people feared for the future and were reluctant to add new debt by borrowing.
Prices declined across the board, but wages held steady until they started down in 1931.

Conditions were worst in farming areas where commodity prices plunged, and in mining and logging areas where unemployment was high and there were few alternative jobs.

The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better.

Business cycles are a normal part of living in a world of inexact balances between supply and demand.

What turns a usually mild and short recession or "ordinary" business cycle into a great depression is a subject of debate and concern. Scholars have not agreed on the exact causes and their relative importance.

The search for causes is closely connected to the question of how to avoid a future depression, and so the political and policy viewpoints of scholars are mixed into the analysis of historic events eight decades ago.

PROBLEMS

Many companies went bankrupt.
Those companies that were not bankrupt, cut their costs by firing some of their employees, to save themseles from going bankrupt.
Many jobs disappeared.
People became depressed and considered and attempted suicide.
Thousands went hungry.
Millions of people who lost their jobs became homeless and suffered great hardships.
Living conditions changed when multiple families crowded into small houses or apartments.
The Great Depression also brought much poverty and hopelessness.
There were also severe unemployment and many social problems

EFFECTS ON SINGAPORE

->trade and business

Singapore’s entrepot trade depended heavily on trade with other countries.
During the Depression, America and European countries, the biggest buyers of rubber and tin bought less of these goods.
Prices of rubber and tin fell, hence some business companies had to dismiss some of their workers to cut back their costs.

->Unemployment and hardships

It was very difficult to find jobs, many people suffered from unemployment and hardship.
The government had to reduce pay and cut down the number of workers.

->Government's response

The government passed out a law to reduce the number of foreign workers.
Large numbers of unemployed workers were sent back to their own countries.

___________________________________________________________________

Sources/acknowledgements:
http://en.wikipedia.org/wiki/Great_Depression
www.gusmorino.com/pag3/greatdepression/
www.bergen.org/AAST/Projects/depression/
www.pbs.org/wgbh/amex/dustbowl/peopleevents/pandeAMEX05.html
Mr. Sim’s notes on chapter 5
http://history1900s.about.com/cs/greatdepression/
http://www.britannica.com/eb/article-9037849/Great-Depression
http://en.wikipedia.org/wiki/Great_Depression_in_the_United_States http://www.english.uiuc.edu/maps/depression/photoessay.htm

The USA - Scott Harrison

www.udayton.edu/~102-14-2

www.ats.edu.mx/proyectos/racevedo/depression
oak.cats.ohiou.edu/.../Interpretation.html

www.eco.utexas.edu/Faculty/Cleaver/RustingWorker.html

www.english.uiuc.edu/maps/depression/photoessay.htm

http://us.history.wisc.edu/hist102/lectures/lecture18.html

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