Feb 7, 2020 in History
The US Economy

The economy must be supported by governments, businesses and people, so that together there is a balance which leads to a fair and beneficial trade among all parts of society.  Even though the United States is thought to be one of the most prosperous and wealthy countries in the world, it has experienced its share of fallbacks, depressions, and unemployment.  In particular, the paper will address major events that changed the US economy in a considerable way.  The Panic of 1907, the Federal Reserve Act, the Wall Street Crash of 1929, the New Deal by Franklin Roosevelt, the Economic Opportunity Act of 1964 and the early 1980s recession have all contributed to the fall and rise of the United States, and without these events, the US would not be the country that it is today.

The Panic of 1907 is also known as Bankers’ Panic, because it is well known that the economy is very much dependant on what happens to banks. The Wall Street in New York is considered to be the capital of the United State’s economy as well as an extremely important place in the world economy.  When the stock exchange fell, it created a panic among people and banks which existed at the time of the recession, and this greatly influenced the following crisis. Several banks and financiers tried to intervene by putting their own money into the banking system, but this was only a temporary solution.  One of the proposed solutions was to raise interest rates for the banks and investors who contributed to the economy, and the immediate increase towards the recovery was accomplished.  However, the panic has started, and the public, investors and brokers wanted to withdraw money from banks.  Others wanted to get a loan to recover, so this raised interest rates.  As a result, what seemed as a rise in stock exchange was a downfall, because people took their money, and loans were given out at even greater rates, so the result was the same — banks lost their money.

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The Federal Reserve Act, which came into force in 1913, was one of the solutions and stabilizers to the economy of the United States.  The Federal Reserve was established as an entity where private and public sectors would pool or gather their money, so that in case there is a crisis, this stored money can be used to support the economy.  No doubt it was a benefit, because the government had direct influence.  At the same time, it was not controlled by the United States government, although it has been decided that the Federal Reserve Act would be responsible for the national currency.  This act required that all banks of the nation would contribute a set amount into the reserve system in the form of stock.  Banks would purchase shares which were non-transferrable, so this was a way to ensure that the system does not back fire.  From one point of view, it was a contradiction to the democratic views of the country, because large amounts of money would be controlled by a single organization.  But it was also clear that the benefits outweighed the doubts and risks that were proposed.  Now, the government had a way to regulate inflation without having full and direct control of the whole system.  One of the most obvious examples that the Federal Reserve Act was a good decision is that the American dollar has become a currency which was accepted almost in all parts of the world, which means that it was of value.

Unfortunately, the Federal Reserve was not able to deal with the devastation that took place in 1929, most commonly known as Wall Street Crash or Black Tuesday.  In 1920, the market was thought to be stable because the economy was booming.  As this was the time of development, there were large investments made, and people did not expect the economy and the market to crash.  This happened because the industry was growing, and a lot of people from the surrounding areas decided to move to the city.  The dominant understanding was that anyone can become prosperous in the city as there were opportunities, jobs, and the support of the infrastructure. People wanted to make a better living, so they left their farms and agriculture behind to pursue wealth.  However, the public, the government, businesses and investors did not realize how heavily the economy relied on agriculture.  Presently, it is clear that people need food and agricultural production to survive, and if everyone spends their time at factories and other businesses, there is no one to grow vegetables and meat products.  As such, the flow to the stock exchange from the sale of agricultural products drastically fell.  Even steel production began to suffer, because people began moving back and forth without any particular investment into the economy.  What followed was the Great Depression, which has undoubtedly become a part of the United States’ and the world’s economic history.

Our Process

This was the time when major changes had to be made, and they came when Roosevelt took action by proposing the New Deal.  The output of the American industry before and during 1932 was close to 54% compared to the crisis that took place in 1929.  People had to sell their farms and products in order to somehow influence the economy and jump start it again.  Roosevelt was just elected as the new president, and he promised that he will do anything possible to change the economy.  He selected a group of trusted people who would make up a force deciding on the changes in social, political and economic lives that would change the unfortunate conditions.  As a result, the Congress passed a number of laws which would support the economy and more importantly, people.  One of the most important parts of the New Deal was to address unemployment by targeting problem areas such as supplies, proper distribution of goods and services, and the elements of economic goals which would target specific needs of people.  A large portion of resources went towards unemployment insurance, which provided the needed support to people.  This shows that people’s moral comfort and trust in the system play an important role in the nation’s economy, because their output and production directly depend on their reliance on the government.  As such, social tension reduced, and a number of public works were created, which did not require large capital resources or expenditures.  The newly passed bill also gave more funding to farmers, so that they could start up agriculture without any further losses to themselves or the society.  Even though there were setbacks, and the crisis continued to influence a large amount of people, decisions that were made and the New Deal have greatly helped to steer the United States back to recovery.

Another great solution was the Economic Opportunity Act of 1964.  It was directly targeting the unemployment and those people who could not start up anew in the falling economy.  The act was started thanks to the help of president Lyndon Johnson who realized that the key to rising economy is making sure that the working class is properly supported.  It is obvious that the opportunities are not equal for people with lower income compared to those who are of middle of even higher class and have access to the privileges unavailable for others.  As such, the purpose of the act was to get rid of poverty, increase education in the families whose income is below the standard, address the safety of private citizens and society in general by helping the elderly population and those with financial problems.  It is important to understand that Johnson realized that prosperity for the whole country needed to be stabilized by the moral beliefs of people.  This meant that economy had to input programs which would aid people without heavily relying on the finances, thus not influencing the present economy.  The decisions that were made by the government addressed several areas of the social make up in order to combat the problem.  One of the primary goals was to increase the volunteer force which would help people in the form of products and short term loans.  As it was difficult to get employment for people with little or no experience, programs were created which would allow demonstrating skills that people had.  As a result, decisions made by employers were much faster and more direct.  People were now offered loans to start their careers, and even though there was a limit on the loan, interest rates were lowered, so more people could afford it.  Most importantly, education has been addressed in the major way as people with low income could not pay tuition or even spend time in an educational institution.  Training programs for the younger and older population were greatly increased, which united part time education and employment opportunities.

Our Benefits

The economic changes that were taking place in the United States were enormous.  There were times when problems were being solved; nonetheless, 1980’s were hit by a recession which had both domestic and global consequences.  Unemployment was once again on the rise because people were unwilling to contribute to the economy.  The recession that occurred hit major sectors responsible for basic industries that supported the infrastructure and society in general.  Everything was on a decrease, from housing to car production and even bank support.  As such, one of the decisions that were made had dealt with loans and lowered interest rates.  People were beginning to acquire housing without a real opportunity to pay back.  At the same time, people were reluctant to spend their savings.  This was due to the fact that everyone has had experience living through the depression and unemployment.  People remembered the panic that crashed markets and destroyed the economy.  As such, the little money that they had was to be saved as everything that was most necessary to survive was the priority.  The same was with employment, since people were demoralized and knew that if they applied themselves hard in the workplace, the money would have to be either saved or paid back to the banks.  The devastation within the economy and society was so great that it even influences the political arena, and there was little support given to the government.

All the events that took place in the United States in relation to the economy show the enormous connection that exists between people, their moral and physical health and the government.  Every time there was a downfall in the banks, people were directly influenced.  The banks would try to recover by throwing money at the problem, but this was never enough.  Even when a temporary solution was found, the government still had to find ways to repay the money to people and the banks.  When a new government would come into office, several bills and acts would be passed in order to address a small portion of the social misbalance which in the end did not raise the economy.  The stock market and the financial system would immediately hit all parts of the social fabric. When the Federal Reserve system was created, it enabled the government and people to see the bigger picture, because with the increased cooperation and support from a number of banks, economic crisis can be somewhat held back and even prevented.  But still the economy is largely dependent on people, and this was seen in the numerous instances when lack of support from the government and financial institutions led to unemployment.  People, the work force and those in the middle and lower class are the ones who majorly contribute to the economy.  By providing proper conditions to the working class, those who are wealthy and financial institutions can increase the economy.  Any changes in the interest rates, the market and the balance between production and sales will influence the sensitive nature of economy.

In conclusion, it is clear that the interdependence of people, banks and the government, all have an input into the economy.  If people are given strong support which is backed up by financial reserves, then the economy will be stable.  If simple and immediate solutions are thrown at people to decrease the panic and devastation, nothing will happen because the real problem is not dealt with.  As such, strong nations are made by people and not finances.

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