Economic Depression in USA

Introduction

Economic depression is defined as the sustained and prolonged down-turn in the economy of a country. Depression is considered more extreme and severe than economic recession. Though depression is considered a form of recession only that depression is characterized by its length, the abnormality of economic factors like rising cases of unemployment, decline in credit availability and also shrinking output and highly volatile monetary value.

Depression is linked to the following two indicators; decline in the Gross Domestic Product by a margin of more than 10% and secondly a recession period exceeding 2 years. According to Foldvary, recession is derived from the word recede that implies falling back and it lasts for a very short time and depression is understood based on the degree of output fall and the extend of the down-turn (Foldvary 3).

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An economic depression happens when there is fall in output below the long-run trend.

The Depression of 1873-1879

This depression was as a result of the bankruptcy of the railroad investment firm of Jay Cooke and company and particularly the restrictive monetary policy of the federal government; this is whereby the gold standard increment could not maintain the pressure for money demands that could enhance the growth of the economy. Deflation is also a factor that led to this depression (Watkins and Allay 1)

The Depression of 1893-1898

This was considered to be the worst form of depression ever witnessed in the US before the 1930. It first emanated from the agricultural crises that affected the southern cotton belt and the Great Plains in 1880s and it later hit the Wall Street and the urban areas in 1893.

This from of depression led to a massive unemployment which is still considered the highest in the US history at 20-25%, the depression resulted in widespread poverty among the Americans of various income levels. The magnitude of the depression was so acute that by 12896, it was made a popular subject of political campaigns (Edwards 1)

The Great Depression of 1929-1933

The United States of America experienced the worst, the longest and the most severe economic depression in the year 1929. This depression led to an acute decline in output, extreme unemployment and drastic deflation in the USA and it has been ranked the second calamity to the civil war.

This depression was largely associated to several factors like the reduced consumer demand, great financial panic and misplaced government spending that forced a fall in economic output.

This depression led to the reduction in industrial production by 47% and the subsequent reduction of the Gross Domestic product (GDP) by 30%, it also resulted in the decline in the wholesale price index or otherwise referred as deflation by 33%; also the unemployment rate reached 20% which was considered the highest point at that time (Romer 1).

This depression is just considered severe when compared to the next depression to hit America in the year 1981-82 that resulted in the decline of GDP by 2%. The USA recovery from this depression began in 1933 when the GDP began to improve at 95 per annum (Romer 3).

The 1930 depression saw the increased level of unemployment characterized by a lot of labor force but no work to do and the worst part of depression was in 1933 when the unemployment rate fall below 10%. Recession appeared twice during the great depression, in the august of 1929 and March of 1933 between as indicated by the following graph;

Concerning unemployment, the high rate of unemployment is demonstrated by the following graph;

Another main indicator of the great depression is the GDP which was greatly affected as seen in the following graph;

During the great depression, the most hit sector was the banking sector. The following table is an indication of how banks were affected including the number of suspended banks and also indicates the decrease in the number of banks as a result of merger, failure or collapse and voluntary liquidation.

Number of banks and bank suspension

YearNumber as of 12-31Suspensions
192924,633659
193022,7731350
1931199702293
193218,3971453
193315,0154000
193416,09657

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