The Great Depression

Essay by mtebowlerUniversity, Master'sA+, May 2004

download word file, 7 pages 4.0

The beginning of the twenties started out slow with a brief recession but it didn't last long; by the early to mid twenties the economy started growing rapidly. By 1929, the Gross National Product (GNP) - the total value of goods and services produced had risen from $75 billion to $84 billion. Manufacturing output rose by 64% due to the manufacturing of the automobile, construction of new dwellings, and manufacturing of radios (Washburne, 1995). Life was good but would not last too much longer for the U.S. economy would soon be taking an unanticipated turn and enter "The Great Depression" which would last until the onset of World War II.

The U.S. economy doubled its industrial production between 1921-1929 and the United States of America welcomed Herbert Hoover in 1929 as President of the United States. The U.S. economy was in a bull market where stocks and bond prices were rising and continued to move forward, people were buying stocks in anticipation of a favorable returns on their investment.

By 1927, the price of stocks had been inflated beyond the actual earning power of the corporations. Investors continued to purchase stock on margin (buying with a small down payment and borrowing the rest at high interest rates.) Increasing inflation along with widespread installment buying meant that large numbers of Americans were living beyond their means. Manufacturers were producing too many goods and the American people could not afford to buy them (Washburne, 1995).

Stock prices continued to rise until one day in October 1929; stock prices stopped increasing and began to descend drastically. Investors began to panic and started selling their stocks for whatever they could get for it. The market suddenly shifted to a bear market and J.P. Morgan and other financiers bought up stocks to try and stop...