Our history does not slow down. Today we will tell you about the problems of the global economy of the 1930s. Currently, the slogan “The Great Depression” is shaking up the next generation of economists. All because of what happened almost on the eve of the outbreak of World War II. Problems, however, began in 1929.
The great crisis began in October 1929 with the outbreak of panic on Wall Street. Panick sale on the New York Stock Exchange was the beginning of economic problems almost all over the world.
What to do when we have a problem?
Well, what do politicians do when economic problems arise? We have written about it several times. This time, the US president, Herbert Hoover, decided to save the situation by increasing customs duties by 40% and tightening the immigration regulations (we know that we have asked about it many times – sounds familiar?). In addition, the state bought grain and started a public works program. In July 1931, it was also earmarked to rescue failing banks as much as USD 4 billion, as in 1929-32 about 25% of all domestic US banks collapsed.
The duties and subsidies for the banking sector did not fully work out. Let’s keep going though! – American politicians thought. In 1932, taxes were raised by 40%! The situation was exacerbated by the conflict with war veterans. Well, under the Bonus Act of 1924, they were to receive in installments financial bonuses for the past service in the army. In the time of crisis, however, they demanded total payments. When the government did not agree, there were bloody riots in Washington. The situation was getting crowded …
When the US gets sick …
The situation in Europe was not better. The US crisis was delayed there, but in May 1931 the largest bank in Austria collapsed. This was of great importance because due to the numerous connections that had their roots in the time of the Austro-Hungarian existence, bankruptcy affected the other parts of the continent.
In July 1931 Danatbank falls – one of the most important banks in Germany. Wishing to save the situation, the government of Heinrich Bruning also tried to fight the problem of top-down regulation of the market. The prices, wages and rents were reduced by law. Another government – this time Franz von Papen – initiated the public works program. As you can see, activities from behind the Ocean have been duplicated.
In September 1931, the United Kingdom suspended the convertibility of the pound to gold and other currencies. It also eliminated foreign exchange restrictions. In the wake of the Kingdom this was also done by other countries, eg Scandinavian countries, Portugal, Egypt, Iran and Iraq. In this way, the so-called a sterling block. Thanks to the above steps, these countries strengthened their position on international markets, but the disadvantages of this system gave their marks during World War II.
The world needs a hero
In 1933, President Franklin D. Roosevelt came to power in the United States. Today, he is almost mythical in the history of the United States (and wrongly also in the minds of Poles). His administration introduced a new banking law that divided the banks subordinate to the FED to commercial and investment projects and established the Federal Deposit Insurance Corporation.
Roosevelt intervened heavily in the market. He brought various government agencies to life. One of them was to regulate the supply in agriculture, the other dealt with the industry, and the Civil Works Administration organized public works. The ideas of the new president were met with fierce criticism of the Republicans. They had a majority in the Supreme Court and began to block further provisions introducing the so-called New Deal. The authorities were accused of increasing the budget deficit and introducing socialism.
In May 1933, however, Congress passed the so-called Thomas’s amendment, which allowed the government to devalue the dollar by up to 50%. In this way, the politicians wanted to boost the economy by increasing the circulation of money. The reaction of frightened citizens did not have to wait long. The Americans actually started mass shopping, wanting to get rid of the dollars that were going to lose value (understand them – it’s as if you knew that the bitcoin rate will soon fall by half and may not return to the current level). After some time, clever descendants of the colonists, however, came to the conclusion that the second such a big devaluation will not be anymore, so … they began to save. In response, in October 1933, the more devious government announced another intention to devalue the currency, but this time without giving a limit. Reply? Once again, the Americans went to the shops with crowds.
Ultimately, this economic game of cat and mouse ended on January 21, 1934. The gold price was set at $ 35 per ounce, which meant the final devaluation by 41%. On January 30, 1934, the Gold Reserve Act suspended the convertibility of the dollar into gold. Citizens and banks were also forced to sell their gold stocks … to the state.
Almost the entire world has depreciated its currencies in 1929 – 1939. In 1939, World War II broke out, which turned the order on the globe almost upside down.