By Me. Cláudio Fernandes
When studying the intermediate period between the two world wars, that is:from 1919 to 1939, one of the most important themes is that of the Great American Depression, whose maximum symbol is the New York Stock Exchange Crash in 1929. This theme is generally known as the “1929 Crisis”. This financial crisis, which affected the entire world, leading millions of people to unemployment and despair.
The main factor that contributed to the Crisis of 1929 was the expansion of credit, issued by the Federal Reserve System - Federal Reserve System - (a kind of American Central Bank) since 1924, still under President Calvin Coolidge. To understand why the expansion of credit generated the crisis, it is necessary to understand a little of the economic context of the 1920s.
After World War I (1914-1918), the US economy became the most important in the world. Given that, with the destruction that the war caused in Europe, the economic production of great powers, such as England and Germany, no longer overlapped with other countries, as it was in the process of recovery. Thus, the USA, while achieving a very large economic production, as it had buyers inside and outside the country, also stimulated the offer of credit to these buyers, as well as the policy of salary increases for employees. However, whenever there was a period of small recession, that is:a decrease in economic production, the government intervened in the market by applying more credit (money and securities from the Stock Exchange) to repair the damage.
The credit expansion measure made interest rates artificial, unbacked by real credit reserves, which were anchored in savings. Investors who had shares on the New York Stock Exchange received a false signal of credit expansion and consequently ended up expanding their businesses, increasing salaries, and investing even more. This process generated an “inflationary bubble”, because, in 1929, a moment arrived when the artificial character of economic expansion could no longer be hidden:there was a lot of money issued circulating, but with no real value with production. Already under the Hoover government, the New York Stock Exchange, responsible for managing the investments applied and the credit issued, collapsed.
The main consequences of the 1929 Crisis were mass unemployment, the bankruptcy of several companies, both in the industrial and agricultural sectors, and poverty, which devastated a large part of the population. American. Many countries that were tied to the American credit system also suffered a major recession in their economies. Brazil, for example, had to burn coffee, the main product of the time, in order to appreciate its price.
The solutions to the crisis were mainly applied by F. Delano Roosevelt and his policy of the New Deal (New Deal), which sought to redesign the American economy.
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