History of Great Depression

The combined net profits of 536 manufacturing and trading companies showed a 36.6% increase over the same period in 1928, with steel production leading the way. Retail sales, construction starts, and railroad revenues set record after record. Stocks continue to make record gains. An enormous surplus of wheat from 1928 drives down wheat prices, straining commodity markets and farmers' incomes. Unemployment hovers around a robust 4%. US nominal GDP is $105 billion.

A mini-stock market crash occurs after the Federal Reserve warns of excessive speculation. However, the mini-crash was averted two days later when National City Bank pumped $25 million in credit into the stock market.

The stock market makes almost entirely uninterrupted gains, gaining 20% over this period (May to September).

Consumer spending and industrial production begin to stagnate in Summer. The Federal Reserve continues with its plan to raise interest rates from 4% in mid-1928 to 6% by mid-1929 in an attempt to combat speculative behavior.

The Agricultural Marketing Act of 1929 is signed into law, providing some $100 million in emergency loans to struggling farmers.

A minor recession begins, two months before the Stock Market Crash. Steel production and automobile & house sales notably decline, construction stagnates, and consumer debt was reaching dangerous levels on account of easy credit. Over $8.5 billion of margin loans for stocks were outstanding, worth more than all currency circulating in the United States at the time.

The London Stock Exchange crashes after the collapse of Hatry Group on charges of fraud and forgery. £24 million in value is wiped out. The collapse shakes the confidence of American investors in the security of overseas investments.

Wall Street Crash of 1929 begins. Stocks lose over 11% of their value upon the opening bell. Economic historians usually consider the catalyst of the Great Depression to be the sudden devastating collapse of U.S. stock market prices, starting on October 24, 1929.

The market experienced a brief recovery.

The New York Stock Exchange collapses, the Dow Jones closing down over 12%.

One day recovery.

The Federal Reserve begins lowering the discount rate from its 6% level.

The stock market bottoms out at 198.60, followed by a bear market that would last until April 1930. Commodity prices, however, continue to decline steeply.

Dow reaches a secondary closing peak (i.e., bear market rally) of 294.07, followed by a long stagnation until a severe decline began in April 1931. This peak matches early-1929 levels, but is 30% below the September 1929 peak.

Automobile sales fall below 1928 levels.

Smoot-Hawley Tariff Act passed, placing more stress on the weakening global economy, primarily through the collapse in trade of agricultural products, which strained banks that had lent heavily to farmers. Further decreases in trade of manufactured products led to layoffs and reduced corporate profits, weakening the economy. General consensus among economists is that the Smoot-Hawley Act did not cause the Depression, but did worsen it and stunted recovery efforts after 1933. Exports declined from $5.2 billion in 1929 to just $1.7 billion in 1933.

Caldwell & Company, a major conglomerate offering banking, insurance, and brokerage services in the Southern United States, collapses and triggered a cascading effect of bank runs on smaller banks in Tennessee and Kentucky. The collapse generates national headlines, contributing to the contagion of fear regarding the banking system.

The Federal Reserve's federal funds rate reaches 2%, a then-record low.

First major round of U.S. bank failures. Some $550 million in deposits are lost. Over 300 banks failed in December alone.

Bank of United States (a private bank in New York City) collapses.

Recession deepens. US GDP contracts by 8.5% and nominal GDP falls to $92 billion. Prices decline slightly but wages hold relatively steady. US annual inflation rate is -6.4%. Unemployment reaches 9%. 1,350 banks fail.

Creditanstalt, Austria's premier bank with major stakes across a variety of industries, becomes insolvent after being forced to assume liabilities from three other insolvent banks, triggering a cascading effect of bank failures across Central Europe. Creditanstalt represented 16% of Austria's GDP, and could not find another institution to guarantee liquidity. 140 million Austrian schillings were lost. The collapse of Creditanstalt caused the Bank of France, the National Bank of Belgium, the Netherlands Bank, and the Swiss National Bank to begin a run on the U.S. dollar for their gold reserves, and forced the Federal Reserve to raise interest rates from 1.5% to 3.5% to maintain the gold standards, which in turn contributed to the deepening of the Depression and the second round of banking failures in the U.S. during the summer of 1931.

The Federal Reserve's federal funds rate bottoms out at 1.5%.

Second major round of U.S. bank failures and worsening economic situation contributes to permanent change in people's expectation of the economy. This run was centered on bank in Chicago, which suffered from real estate loan defaults. Of the 193 state-chartered banks in the Chicago area in 1929, only 35 would survive to the end of 1933.

The Hoover Moratorium is issued June 20th, suspending reparation payments from Germany to stabilize the country.

The Reichsbank loses 840 million marks in less than 3 weeks as investors pull out short-term deposits.

Germany's second largest bank, Danatbank, becomes insolvent on July 13th. Two day bank holiday is declared. Industry suffers a catastrophic collapse.

Deepening deficits and demands for a balanced budget lead to Ramsay MacDonald's Labor government raising taxes by £24 million and cutting spending by £96 million, most controversial was the 20% cut to unemployment benefits (a sum of £64 million). The U.K.'s public debt at the time was 180% of GDP, mostly left over from the expenses of World War I. Public outrage would lead to the Labor Party being virtually destroyed in the October 1931 election.

Britain leaves the gold standard, and the pound sterling depreciates by 25%. Despite warning of disaster, the departure proves beneficial to the British economy, as exports become more competitive. Additionally, the Bank of England was now free to engage in money creation, and reduced interest rates from 6.00% to 2.00%.

The United Kingdom General election, 1931 takes place, destroying the Labor Party and delivering a landslide victory to the Conservative Party.

2,294 banks went down with nearly $1.7 billion in deposits. 28,285 businesses failed for a daily rate of 133 failures in 1931. Unemployment rises to 16%. US nominal GDP falls to $77 billion, and growth is -8.5%. Annual inflation is -9.3%.

The Reconstruction Finance Corporation is created to lend $2 billion to troubled financial institutions that were not part of the Federal Reserve System that were solvent in the long-run. By 1941, the RFC would lend out some $9.5 billion to banks, railroads, and mortgage associations, as well as state and local governments.

Michigan becomes the first state in the U.S. to declare an indefinite bank holiday, in an attempt to stem the impending collapse of First National Bank of Detroit and the Guardian National Bank of Commerce, the two largest banks in Detroit. First National and Guardian National were threatened with failure if the Ford Motor Company made good on its desire to withdraw all of its deposits in the two banks; Ford needed the cash to cover its $75 million loss in 1932.

Federal Reserve conducts open market transactions, increasing the money supply by $1 billion.

The Revenue Act of 1932 is signed into law, raising taxes on personal income, corporate income, and sales taxes on various goods.

Majority of foreign trade restrictions take effect, from Smoot-Hawley in the United States and Imperial Preference in the British Empire.

U.S. government discontinues open market operations.

The Dow Jones Industrial Index bottoms out at 41.22, the lowest level recorded in the 20th century and representing an 89% loss from its peak in September 1929.

The German federal election, July 1932 is held, and the Nazi Party, led by Adolf Hitler, becomes the largest party in the Reichstag.

The German federal election, November 1932, the last free and fair all-German election until 1990, is held. A minor setback for the Nazi Party, a campaign of mass violence and intimidation would begin in the run up to the next election in March 1933. Hitler is later appointed Chancellor of Germany by President Paul von Hindenburg, and would use the Reichstag fire as a pretext to declare a state of emergency in Germany expanding his powers.

1932 United States elections: Franklin D. Roosevelt elected 32nd President of the United States in a landslide, the Democratic Party wins massive majorities in both chambers of Congress.

Unemployment rises to 23%, GDP growth is -13%, annual inflation rate is -11%, 1,700 banks fail. US nominal GDP falls to $60 billion. Over 13 million in the U.S. are unemployed and 3.5 million in the U.K.

Franklin D. Roosevelt is inaugurated as President.

The controversial Economy Act of 1933 is signed into law, slashing $243 million in government salaries and pensions, and veterans' benefits. Despite the economic crisis, super majorities of American economists, policymakers, and the general public believed that the federal government needed to balance the budget and avoid deficit spending, to avoid putting further strain on the bond market which would negatively affect government borrowing costs, banks, corporations, and foreign investors. From 1929 to 1933, the total debt owed by the U.S. government rose from $16.9 billion to over $23 billion.

By the end of March, over $1.1 billion in hoarded cash was deposited into the banking system.

The Civilian Conservation Corps, a public works relief program, is created. It would last until 1942 and is an icon of the New Deal programs.

Executive Order 6102 of President Franklin D. Roosevelt issued, forbidding hoarding of gold coin, bullion, and certificates, effective from May 1, 1933.

The Emergency Banking Act was enacted, which enabled a restructuring of the banking system.

The Agricultural Adjustment Act is enacted, designed to boost agricultural prices by reducing surpluses.

The Securities Act of 1933 is enacted, requiring the registration of all sales and purchases of financial securities, as well as the disclosure of critical financial information about the firms involved. The U.S. Securities and Exchange Commission was established the following year, which helped combat insider trading and reducing transaction risk.

Federal Reserve industrial production index rebounds to 85.5, a 57% increase over the 54.3 recorded in March 1933.

The Civil Works Administration is created, which would employ over 4 million people and distribute over $400 million in funds for work programs through its end on March 31, 1934, when it would be replaced by the more permanent Works Progress Administration.

Prohibition is repealed at the national level. 18 states continue with state-level prohibition. The end of Prohibition hurts organized crime, allows legal employment in alcoholic drink production, and increases state tax revenues.

The inflation rate turns positive, at 1% annually. Quarterly GDP growth turns positive by summer, but overall annual rate is -1.3% growth. Unemployment peaks at 25%. 2 million are homeless. Industrial production is half of what it was in 1929. US nominal GDP bottoms out at $57 billion (down from $105 billion in 1929).