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The first factor in the start of the Depression was the lack of diversity in the American Economy. It relied strongly on only a few basic industries, notably the construction and automobile industries. In the 1920's those 2 industries began a rapid decline: construction became scarce and fell from 11 billion to under 9 billion between 1926 and 1929. The automotive industry fell more than one third in the first nine months of 1929. Second, there was a maldistribution of purchasing power, and as a result a weakness in consumer demand. As major industries increased, the percent of profits going to consumers was to small to create adequate market for the goods the economy was producing. A third major problem was the credit structure of the economy. Farmers were greatly in debt, and crop prices were extremely low. Small banks were in trouble, many customers defaulting on their loans. Big banks were in trouble as well, many investing recklessly in the stock market then losing it all when the stock market crashed in 1929. The fourth factor was Americas position in the international trade market. In the late 20's, Europe's demand for American goods began to decline, partly because their industry was becoming more productive and partially because their economy was destabilized from the international debt structure that emerged in the aftermath of WW1. The international debt structure was a fifth and final factor contributing to the Great Depression. At the end of the war in 1918, all the European nations that had been allied with the US owed large sums of money to American banks and could not repay them with their shattered economies. The reparation payments were needed greatly from Germany and Austria, yet they were no more able to pay than the Allies were. This caused American banks to begin making large loans to European governments which they used to pay off their earlier loans, really only piling up debts. The collapse of the international credit structure in 1931 was one of the reasons the Depression spread to Europe.
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Hoover made many noteworthy attempts to try and combat the Depression. His first response was to attempt to restore public confidence in the economy. He implored businessmen not to cut production or lay off workers. He talked labor leaders into forgoing demands of better wages and hours. But by mid 1931, the structure of voluntary cooperation he had constructed had collapsed. Hoover then proposed the Presidents Organization for Unemployment Relief, $432 million granted to states for public works and recreation. But the spending was not nearly enough in the face of such devastating problems. He proposed the Hawley Smoot Tariff in 1930, containing increased protection on 75 farm products. Also, in 1929 he proposed the Agricultural Marketing Act, which established the first major government program to help farmers maintain air prices. But neither of these attempts ultimately helped Americas farmers significantly.
Americans were starting to see Hoover as "aloof" and "out of touch", not really with it. The Federal budget was running into the red and into a deficit. Hoover then went to Congress and asked for tax hikes to balance the budget. In January of 1932, the most innovative idea to come out of the Hoover administration was enacted. It was known as the RFC, the Reconstruction Finance Corporation a government agency whose purpose was to provide federal loans to troubled businesses, banks and railroads. Struggling industries could now take out loans, with the belief that the economic benefits would extend to all Americans creating more jobs than spending. This was the first time the Federal government became involved with the economy during a time of peace. Yet, the new agency failed to deal directly and forcefully enough with the real problems facing the economy from the Depression. It really only lent money to the institutions with sufficient collateral and those public works projects that promised to pay for themselves like public housing and toll bridges.
The worst four months of the Depression happened in 1933, in the four months between Franklin Roosevelt's nomination to the presidency and his candidacy. Unemployment hit 25%, hundreds of banks failed and the inaugural date was moved ahead 2 months to January 20 where it remains today. Roosevelt was elected on his promise of a so called "New Deal", yet not telling Americans what it was.
The New Deal was a legislative package of various acts to try and stimulate the economy and create new jobs. The first New Deal was to provide Relief, Recovery and Reform. Relief to provide jobs, recovery legislation for business and industries to recover from hard times and reform to pass legislation to stop another disaster from forming. There were 15 acts passed. Some of the major ones are listed below.
The first area Roosevelt attacked was the banking crisis, ordering all banks closed and Congress into an emergency session. On March 9, the first major act passed was the Emergency Banking Act, leading all banks to be inspected by the treasury department and only those banks who could prove they were financially sound would be allowed to reopen. On March 12 , Roosevelt gave the first of his famous Fireside Chats instructing Americans on why he closed the banks and how only safe banks would be allowed to reopen. Within a few months banking had stabilized. In June of 1933 the Glass Segal Act established the Federal Insurance Corporation, insuring deposits up to $2500. This was a long term reform effort to ensure another banking crisis wouldn't occur. Next was the Federal emergency Relief Act giving one billion dollars to the Civil Works Administration and the Public Works Administration to create new jobs. Four million Americans soon became employed. The Civil Conservation Core was soon formed employing young Americans between the ages of 18 and 25, paying them $1 a day to work on various environmental projects. This was a shot term relief enactment dealing with unemployment. The Agricultural Adjustment Act paid farmers to grow less crops and make up for overgrowing differences. Within two years the profits were doubled from 3 billion in 1933 to 5.8 billion in 1935. The National Industrial Recovery Act established guidelines for Americas industries. It established minimum wage, maximum hours, women's hours and child labor laws. It gave Americans the legal right to unionize for the first time.
Nothing that the New Deal did ended the Great Depression, yet some of its many acts stopped it from getting worse, and pointed America toward more secure and effective economic policies in the future. The New Deal gave many Americans a sense of the possibilities that were rite in front of them, and that the fortunes of individuals need not be left to the chances of an unregulated market. Roosevelt's ideas and acts helped save the American economy. Hoover, though it may not go without say that he tried, did no do much to help in a time of crisis. The Great Depression would forever change Americans and the face of Americas economics.