It is axiomatic to squabble that recession interferes with the financial stability of a country. The great recession of 1930 is one of the main economic blows that the global financial market has ever faced. It has been used by a myriad of economist and financial analyst to explain the vulnerability in the markets. The future of America appeared bright in 1929 when Hebert Hoover was inaugurated as the president of America. The penchant for efficient planning and academic qualification put him ahead of his peers to be able to head the government. His era however marked the greatest depression that the country has ever faced, which also saw the crush of the stock market. (Heinrichs, 2012) Whether this was unprecedented or not, it is undeniable that great depression affected the world. It never practiced discretion; it affected both individual and companies. This paper holds that there are a number of factors that were responsible for the recession that affected the globe. This paper refutes the notion that has been put by other economists that President Hebert Hoover was responsible for the economic recession and its impacts.
The economic crisis of 1930 is attributed to a myriad of intertwined complex factors. One of the common factors that is that there was over speculation in the stock market that was not regulated by the responsible authorities. The American stock market fell in 1929 and is often regarded as one of the great reasons of depression. The crash was preceded with period when the people of America discovered the stock market. The crash resulted into a serious loss of the individual and companies investments. Investors were left shaken given that the stock market brought a lot of excitement that drove most people to put their money into the economy. People were completed shattered when the banks erased the savings by the people including those who had not injected in the stock market. Despite the fact that recession was unavoidable, better policies and regulations could have been applied to avoid the failure by the banks. (Canterbery, 2011)
The fed in 1929 took what economists regard as unprecedented move by cutting the supply of money by almost a third. The reaction literally chokes off any possibility of recovery. A myriad of banks in the country therefore suffered the problem of liquidity. The reaction of failing to bail out banks was regarded as harsh and did not help in addressing recession in the country. The similar effect was faced by the market in 1907 when the panic of selling sent the spiral downward effect on the New York Stock Exchange. The banks also ran to boot at that time. The fed relied on J.P Morgan to organize the Wall Street given that the former did not have enough cash to inject into the market. Morgan on the other hand mainly relied on individuals who had cash to support the banks that did not have cash. The government later created a Federal reserve with the view of reducing its reliance on other financial institutions. An increase in the money supply and reduction of the interest low during the period of roaring twenties saw a serious expansion that was preceded by the collapse of the economy. It is regarded as having caused a market bubble that led to the crash and later facilitated the growth of the economy. (Martin, 2011)
Another factor that has been indicated to have resulted into great recession is the unequal distribution of resources. The inequality was very high with very minimal upper class and middle class people. Most people were mainly on the lower class and could not raise funds to support government activities. The people could not keep pace with the cost of living that kept increasing. The wealth was mainly in the hands of few industrialists. When the economy was suffering, very few people could bail the government and the banks. Besides, the period saw the excitement of credit cards. Most people spent using the credit cards and later failed to pay given their low income. This was one of the reasons behind the bank’s failure. (Kahler, 2013)
One of the main concerns of Hoover was that the wages of workers were to be cut after the economic downturn. To ensure the plausible high wages for the people, prices needed to remain very so that most of the business/companies could continue producing. By having high prices, consumers would be forced to cough more dollars to pay for the goods and services. It was however tricky given that the crash left many people who were not able to pay more for the goods and services. The president was obliged to apply legislation to ensure that wages prop up. Congress however applied the protectionist policy of restring the flow of foreign goods by adopting the Smoot-Hawley tariff act. Given that a number of foreigners were not willing to buy the overpriced American goods, the president chopped out the cheap imports. The congress adopted act that was intended to mainly protect agriculture later swelled to cover the 3entire industries. The act resulted to the retaliation of other countries by cutting international trade and introducing their high tariffs. The economic conditions for the Americans became worse and the economy literally sunk into depression. The problems continued even after Roosevelt took on the leadership of America. He continued with Hoovers policies which backfired. The big deal which he believed would change the economic situation of Americans worsened the lives of America and depression which was already making living conditions hard.
Economic recession is also attributed to the new deal by the Roosevelt government. The deal set key goals to maintain healthy wages and full employment and even the control of production. The intervention was mainly anchored on the Keynesian economics that believes that the works of the government can be used in the stimulation of an economy. This paper acknowledges that a number of the proposed government works were ideal but could not succeed because of politics, corruption, and mismanagement ended wastes which characterized a number of government departments. The new deal therefore resulted into the destruction of crops which later resulted into the increase in prices of the products. A number of agencies that were created under the new deal started selling cheap goods in the black market forcing factory workers to quit jobs. The result was reduced production; moreover, incidences of unemployment also went high given that the companies could not pay their employees at the set rate.
The great recession that affected the entire American economy ended with the unappealing world war 11. The war opened up a number of international trading channels. It also resulted into the controlling of the wages and also reversing the prices of goods and services. The government demanded products made cheaply which pushed the prices and wages below the market levels. At the end of the war, the trade routes remained open making it easy for the local companies to export their products. (Rampell, 2009)
In a nutshell, it is unarguable that the great recession affected the American economy. It was unlucky combination of peculiar complex factors that were mainly centered on the reticent fed, poor government recovery plan, protectionist tariffs and the application of Keynesian theories. The situation could have been solved if better policies were adopted. Therefore, no one can be blamed for the great recession but instead a combination of the above factors. The government could not be blamed given that the current fiscal and monetary policies that are used as a quick recovery plans given that it was the first time the public lost such huge sums of money in the stock exchange. Those who support Feds action on the other hand hold that Fed wasn’t aware that the government would pass the proposed trade crushing tariff and adopt some of the measures questioned by a number of analysts.
Canterbery, E. (2011). The global great recession. Singapore: World Scientific.
Heinrichs, A. (2012). The great recession. New York: Children's Press.
Kahler, M. (2013). Politics in the new hard times the great recession in comparative
perspective. Ithaca: Cornell University Press.
Martin, F. (2011). A decade of delusions from speculative contagion to the great
recession. Hoboken, N.J.: Wiley.
Rampell, C. (2009). ‘Great Recession: A Brief Etymology’, New York
Times, March 11,2009.