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Econ: What was the Great Depression? 15 Views

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What was the Great Depression? The Great Depression was a time when the economy saw the worst crash ever. The Great Depression began in the United States following the stock market crash of 1929, but the effects were felt all around the world. It happened while World War II was happening, so basically the whole world was just in shambles. The Great Depression lasted roughly ten years and led to high unemployment, loss of savings following bank failures, and extreme price changes in goods, among other massive, painful changes.

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00:00
and finance Allah shmoop What was the Great Depression Okay
00:08
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
00:13
where you sit in front of the TV for twelve
00:15
hours at a time shoving massive amounts of Cheetos in

00:17
your mouth and obsessively checking your ex's instagram feed one
00:21
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
00:32
American history Ever wonder why your great grandpa spent so
00:36
much time burying Mason jars filled with quarters in the
00:39
backyard while obsessively mumbling about those *** banks While starting
00:44
in the late nineteen twenties the Great Depression lasted until
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in the early nineteen forties really ending Justus America for
00:50
ever cared for entry into World War two The Depression
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included mass unemployment widespread bank shut down There were significant
00:58
foreclosure like people getting kicked out of their homes Then
01:01
there was starvation and well just long lasting financial trauma
01:05
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
01:11
expansion when the economy slows down While that's known as
01:14
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
01:28
to mass political dislocation which eventually feeds into the causes
01:31
of World War Two well then it becomes the Great
01:34
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
01:41
bombed out and bankrupt Thank you Germany and the U
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S Emerged from the war is the key economic power
01:47
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
01:53
full swing Gatsby is there hosting lavish parties in West
01:57
Egg Babe Ruth is partying down with Charlie Chaplin in
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a C speakeasy owned by Al Capone The U S
02:04
Is benefiting from a boom and consumer products and rapid
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expansion of technological improvements like radios That was high tech
02:10
in those days There were cars there were refrigerators Yeah
02:14
they're all becoming common household items and we made him
02:17
we exported him well Meanwhile financial speculation runs rampant You
02:21
could make a killing in a Florida land deal or
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by booming tech stocks like RC A right the Radio
02:28
Corporation of America But things started to get shaky toward
02:31
the end of the decade late nineteen twenties commodity prices
02:34
have been falling for some time leaving farmers who sell
02:37
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
03:35
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
03:59
a third like thirty three percent Well the additional dough
04:01
from the margin account further inflates the stock bubble of
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the nineteen twenties but it also makes the bubble Mohr
04:07
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
04:56
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
05:12
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
05:18
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
06:50
pulled the US out of the Great Depression So yeah
06:54
it didn't even need to go to counseling Uh oh
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