The Great Depression of 1929

The Great Depression of 1929 was a 10-year period of dramatic impoverishment, triggered by Financial Corruption that caused the October 29 1929’s Stock Market Crash.


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What was the economical factor for such extreme impoverishment?


In a nutshell, it was due to an artificial lack of money in circulation. There was not enough money for 10 years.

Such money scarcity was not caused by a lack of production capacity, infrastructure or other real economical factor. It was simply a political decision!

In the aftermath of the 1929 Stock Market Crash, the people in charge of the U.S. Economy, namely the Federal Reserve and economic advisors, decided to maintain the money supply extremely tied. The excuse for such decision was the fear of inflation, yet what those economists did was to strangle the economy.


What were the immediate consequences of the Great Depression of 1929?


Among other consequences, in the U.S. alone, between 1929 and 1933 land prices went dramatically down. Personal and business debt skyrocketed. Production stalled almost 50%, triggering devastating unemployment.

Can you imagine that the number of unemployed people rose from less than 3.5 million to almost 15 million people!

Consequently, the national income went down over 50%. Homelessness and hunger were therefore part of such human calamity.


What was the cause for the 1929 stock market crash?


In one word, it was Corruption!

Beside other factors (see ‘The 1929 Stock Market Crash’), Adam Smith’s financial market deregulation (aka ‘Libertarian school’ or ‘Laissez Faire’ mentality) was the breeding ground for such corruption. It manifested under the form of uncontrolled stock market speculation that created a price bubble. Those financial speculators misled the general public to acquire loans in order to invest such proceeds into hyper-inflated stocks. There was a point where the money in circulation was not enough to support the increased level of indebtedness.


Who were the winners and the losers of such debacle?


Obviously, the main winners were the financial speculators, and the losers was not only the U.S. population but that of Western countries.


What was President Franklin D. Roosevelt’s plan to curb the Great Depression of 1929?


President Roosevelt and his advisors, including Mr. John Maynard Keynes, delineated a plan called the New Deal. It was implemented from 1933 until 1938.

In essence, the original intention was to regulate the financial markets and revive the economy thus reducing unemployment.

Yet, despite President Roosevelt’s efforts, the New Deal proved insufficient to reactivate the economy. The reason for such poor outcome was that the plan did not attack the root cause of the problem which was the lack of money in circulation.

The most important social achievement of the New Deal was otherwise the creation of the U.S. Social Security System.


As part of the New Deal, what was the banking act that was finally implemented?


It was the Banking Act of 1933, also called the Glass-Steagall Act.

Its purpose was to regulate the financial activity and reduce speculation, by protecting deposited money via insurance on those deposits, and by separating commercial banks (aka deposit banks) from investment banks. The latter intended to prevent bankers to collect deposits and at the same time gamble with such money in the stock market.

The Glass-Steagall Act did some good yet it was insufficient since it was not addressing the heart of the problem which was the scarce money supply.

By the way, the Banking Act of 1933 was repealed in 1999, Such fact, enabled the deregulation of financial investment practices, unleashing financial corruption and speculation that paved the way to the major crisis after the Great Depression of 1929: The 2008 Global Economic crisis.


As part of the proposed banking reforms during the Great Depression of 1929, what was the one that was not implemented?


It was called the Chicago Plan. Such plan would have reactivated the economy.

In a nutshell, it would have fueled the economy with the money that was so desperately needed for 10 years (1929-1939). That would have been accomplished by nationalizing the Federal Reserve System and abolishing the money creation by private banks.

The plan was basically archived as soon as the World War II crisis started.


Why during the Great Depression of 1929, people in power in Canada were an absurd example of inaction to curb the crisis effects?


In 1929, the Canadian Prime Minister was William Lyon Mackenzie King. At the 1930 election, his party got defeated.

For the 1935 election, Mr. Mackenzie King campaigned again. He based his platform on a proposal to reform the monetary system in order to eliminate money scarcity. His repeated statement was that such lack of money in the economy was the culprit for stagnation.

His party won the 1935 election with a vast majority. On the evening of his party’s victory, Mr. Mackenzie King declared:

‘The election is an endorsement of the Liberal view that credit is a public matter, not of interest to bankers only, but of direct concern to every citizen.’

‘It is a clear verdict against the private ownership and control of a national bank; and in favor of a duly constituted national bank, for the control of currency issued in terms of public needs.’

The absurdity is that despite such clear message and such majoritarian support from the Canadian electorate, William Lyon Mackenzie King did nothing to resolve money scarcity during his term as Prime Minister. Consequently, the Canadian population kept on suffering the Great Depression of 1929 consequences. What a disappointment for Canadians!


In summary, the Great Depression of 1929 was triggered by Financial Corruption that led to the October 1929 Stock Market crash.


As a result, over a 10-year period (1929-1939), there was not enough money in circulation on a ‘fear of inflation’ argument. With such argument, governments let unresolved the core issue, allowing millions of people to suffer the calamities of unemployment, impoverishment, and in countless cases, hunger and homelessness.


The absurdity of the Great Depression of 1929’s epilogue is that as soon as WWII was declared in 1939, by the flick of pen billions of dollars that had been desperately needed over the precedent years were created by bankers out of nothing!


Shouldn’t such extreme impoverishment and suffering have been resolved sooner?


Shouldn’t a proposal such as the Chicago Plan have avoided such human calamity? 


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